Bills of Lading
Cases
AP Moller-Maersk A/S (t/a “Maersk Line”) v Sonaec Villas Cen Sad Fadoul & Ors
[2010] EWHC 355 (Comm) [2010] Bus LR D97, [2010] EWHC 355 (Comm), [2010] ILPr 32
Clarke J
The first declaration which Maersk seeks is a declaration that all disputes arising under the First Bill are to be determined by the English High Court of Justice in London (to the exclusion of the jurisdiction of the courts in any other country) in accordance with clause 26 of the First Bill of Lading
It is quite clear that that is the position in English law under the First Bill. The language of clause 26 provides in unequivocal terms for English law and exclusive English jurisdiction (unless the carriage was to be to or from a port in the USA which this carriage was not).
There is, however, a question that arises as to the jurisdiction of this court to make any declaration to that effect. The jurisdiction of this Court, so far as presently relevant, is governed by Regulation 44/2001, the Judgments Regulation, which confers jurisdiction on a court, where the parties, one or more of whom is domiciled in a Regulation State, agree that the courts of another Regulation State are to have jurisdiction to settle any disputes arising out of a particular legal relationship. Clause 28 of the First Bill is an agreement between the parties to it to have “all disputes arising hereunder” determined by the English High Court and under English law. I have no doubt that a dispute as to whether a claim in respect of the First Bill is subject to English law and jurisdiction is a dispute arising thereunder. So, also, is a dispute as to whether or not Soanec still enjoys rights under that Bill.
More problematic is whether or not (a) any of the defendants were ever parties to the contract contained in or evidenced by the First Bill including the jurisdiction clause; (b) whether, if they were, they have ceased to be so; and (c) if so, whether the Court has any jurisdiction over them such as would entitle it to make a declaration.
As to (a) it is necessary to refer to the provisions of the Carriage of Goods by Sea Act 1992. That provides, so far as relevant:
“1. Shipping documents etc to which Act applies
(1) This Act applies to the following documents, that is to say–
(a) any bill of lading;
(b) any sea waybill; and
(c) …
(2) References in this Act to a bill of lading–
(a) do not include references to a document which is incapable of transfer either by indorsement or, as a bearer bill, by delivery without indorsement; but
(b) …
(3) References in this Act to a sea waybill are references to any document which is not a bill of lading but–
(a) is such a receipt for goods as contains or evidences a contract for the carriage of goods by sea; and
(b) identifies the person to whom delivery of the goods is to be made by the carrier in accordance with that contract.
2 Rights under shipping documents
(1) Subject to the following provisions of this section, a person who becomes–
(a) the lawful holder of a bill of lading;
(b) the person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) …
shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.
(5) Where rights are transferred by virtue of the operation of subsection (1) above in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives–
(a) where that document is a bill of lading, from a person´s having been an original party to the contract of carriage; or
(b) in the case of any document to which this Act applies, from the previous operation of that subsection in relation to that document;
but the operation of that subsection shall be without prejudice to any rights which derive from a person´s having been an original party to the contract contained in, or evidenced by, a sea waybill…
The First Bill is not marked to order but does contain or evidence a contract of carriage and identifies a person to whom delivery of the goods is to be made i.e. the named consignee, which I take to be the same as Sonaec (not least because Sonaec is the claimant in Benin). On no view is it Mr Fadoul. As a result, if Sonaec was not an original party to the contract of carriage, sections 1.1 (2) (a) and 1 (3) are applicable so that, for the purposes of the Act, the First Bill is to be treated as a sea waybill. Section 2 (1) provides that the Sonaec has “transferred to and vested in [it] all rights of suit under the contract of carriage as if [it] had been a party to that contract”. Accordingly at some stage Sonaec had vested in it all rights of suit under the contract of carriage. Those rights were rights which were exclusively to be adjudicated upon by the English High Court. Accordingly, if Sonaec was not an original party, it became a party to the First Bill, including clause 26 which provides that disputes under it should be determined in England.
There is, however, a further problem, which I drew to Mr Brier’s attention. Maersk contends, as I understand it, that Sonaec was not an original party to the First Bill, and that, whatever might have been the position under the First Bill and the 1992 Act at one stage, the First Bill is now inoperative, it having been surrendered to Yekalon and followed by the issue of the Second and Third Bills. Maersk asks me to declare that any rights of suit the defendants may have had under the First Bill have ceased to exist. If that is so then, on one view, the granting of the second declaration would definitively establish that the court had no jurisdiction over Sonaec to declare that that is so.
Mr Brier observed that whether or not rights under the First Bill have ceased to exist is in dispute and that, in any event, clause 26 may be regarded as an ancillary contract (albeit contained in the First Bill), which survived any cessation of the operation of the other parts, so that the High Court can decide and declare that no rights under that Bill now subsist.
The former observation does not carry matters any further forward since Maersk contends that the dispute should be summarily resolved in their favour and that I should make a declaration to that effect.
As to the latter submission, it is now established that an arbitration agreement is a contract collateral to the main contract, and that it may survive the termination of the latter. Thus, if it is alleged that the contract, although once existing, has come to an end by the acceptance of a repudiation or frustration, or through the operation of a termination provision in the contract itself or the failure of a condition precedent, the arbitration clause may still operate: see Mustill and Boyd, Commercial Arbitration, 2nd Edition pages 110 -112. If clause 26 was an arbitration agreement it would, in my judgment, be open to the arbitrator to make a declaration as to the continued effectiveness (or otherwise) of the First Bill.
No authority was cited to me which deals with the position so far as an exclusive jurisdiction clause is concerned. It seems to me however that similar principles should apply.Further in Benincasa v Dentalkit Srl [1997]ECR 1-3767 the European Court of Justice held that the courts of a Contracting State which have been designated in a jurisdiction clause validly concluded under the first paragraph of Article 17 of the Convention (the predecessor to Article 23 of the Judgments Regulation) also have exclusive jurisdiction where the action seeks a declaration that the contract containing that clause is void.
I do not, therefore, regard myself as lacking in jurisdiction to make the first declaration sought, even if all Maersk’s submissions are entirely correct, and I propose, therefore, to make it.
I do not purport to decide anything about the jurisdiction of the court in Benin, which is a question for it. What I do decide is that, in English law, by which the First Bill is expressly governed, the First Bill is subject to the exclusive jurisdiction of the High Court in England & Wales and any claim under it must be brought here.
Second declaration
The second declaration sought relates to the question whether the defendants have any title to sue in any event under the First Bill. Maersk contends that they do not.
Maersk’s submissions
The First Bill was a “straight” bill of lading in that it contained or evidenced a contract of carriage for delivery to a named consignee and was not marked “to order”. For the purposes of the 1992 Act, it was, thus a “sea waybill”. As I have noted, under section 2(1) (b) of the Act rights under a sea waybill and the contract of carriage contained in or evidenced thereby are ‘transferred’ to the named consignee as soon as the bill is signed. But a shipper who is and remains party to the contract of carriage does not lose his right viz-a-viz the carrier to divert the goods, as he may wish to do if he is not paid for them.
This is made clear by Carver on Bills of Lading, 2nd Ed, at paragraphs 8-013 and 8-014:
“8-013: Rights of original shipper. Section 2(1) refers to rights of suit being “transferred” to the person to whom delivery is to be made under a sea waybill. If full force were given to the word “transferred”, then A (the shipper) would lose his rights under the contract of carriage when C (the consignee) acquired such rights; and since in our example the contract contained in or evidenced by the sea waybill from its inception provided for delivery to C, it might seem at first sight to follow that A lost his rights under the contract as soon as it was made. Quite apart from the logical difficulty of such a concept, the reasoning would also give rise to the practically undesirable consequence of depriving A of the rights which a shipper has at common law of redirecting the goods; and we have seen that the Act is intended to preserve and does preserve this right. It does so by providing in s.2(5) that the operation of s.2(1) “shall be without prejudice to any rights which derive from a person’s having been an original party to the contract contained in, or evidenced by, a sea waybill……
8-014: Change in consignee. Where goods are shipped by A in B’s ship under a sea waybill naming C as consignee, A may exercise his power to redirect the goods by substituting D for C as consignee. Where A does this, C ceases to be, and D becomes, “the person to whom delivery…. is to be made by the carrier” so that rights under the contract of carriage are vested in D by virtue of s.2(1) and any rights which were previously vested in C become extinct under s.2(5)….”.
Maersk submits that, logically, if A, the shipper, has the right to redirect the goods by changing the terms of the original sea waybill so as to substitute a different named consignee, he must also have the right to agree with B, the counterparty to the contract of carriage, to terminate that contract and substitute a new contract of carriage (by way of a new bill of lading) with a new named consignee. This is precisely what happened in the present case when the First Bill of Lading was cancelled by Yekalon and Maersk and replaced with the Second and later the Third Bill of Lading.
Maersk relies on the summary of the law contained in chapter 3 (written by Professor Charles Debattista), page 101 of Southampton on Shipping Law (2008), published by the Institute of Maritime Law, where he says :
“It is clear that the main advantage of sea waybills and straight bills is that rights of suit against C [Carrier] can travel from S [Shipper] to B [Buyer/Consignee] without physical transfer of the sea waybill of the straight bill of lading by S to B. There are, however, three possible consequences of the use of such documents which need to be weighed up against this advantage. First, because B’s rights of suit against C depend exclusively on its being named as consignee on the document, those rights of suit vanish as soon as B stops being named as consignee – and S can, so far as concerns its contracts of carriage with C, name another person as consignee at any time until the goods are discharged: B’s rights of suit against C are consequently precarious in that S can deprive B of such rights through the simple expedient of giving alternative delivery instructions to C…. “
Thus, the position as a matter of English law is that, insofar as any of the Defendants ever acquired any rights under the First Bill by virtue of the operation of section 2(1) of the 1992 Act, any such rights were lost when that First Bill was cancelled and replaced at some point prior to 18 February 2008.
Conclusion
I accept the submissions which Maersk makes in paragraphs 35 – 39 above. In particular, as to para 37, if the shipper is entitled to direct delivery to a different consignee he could direct delivery to himself. There can, therefore, be no reason why he cannot agree with the carrier to replace the First Bill with another one.
Whether or not Yekalon was, in truth, the shipper contracting with the carrier and thus (a) a party to clause 26 originally; and (b) able to direct that the cargo should not be delivered to Sonaec is less clear. Maersk asserts that that is so. The Chinese court has so ruled, but on evidence which is not before me. Moreover the First Bill was not directly in Yekalon’s name. The named shipper was B & D Co Ltd “pour compte de” Vernal and Yekalon. Vernal and Yekalon had potentially antithetical interests. It is not entirely clear what “pour compte de” was supposed to signify and, in particular whether B & D was purporting to act as agent for both of them and, if so, in what respects.
A possible view is that B & D was contracting for the carriage on behalf of Vernal (which appears to have paid the freight[2]) for Sonaec; but also for Yekalon, since, by shipping goods on board Yekalon fulfilled its duties as FOB seller.
In Pyrene v Scindia [1954] 2 QB 402,426 where all the arrangements for the carriage of the good had been made between the carrier and the buyers Devlin J said: “There is no difficulty in principle about the concept of an f.o.b buyer making a contract of affreightment for the benefit of the seller as well as himself.” He considered that the seller participated in the contract of affreightment “so far as it affected him”. He also considered with markedly less enthusiasm the possibility that there was an implied contract between carrier and shipper constituted by the carrier’s invitation to the seller to load and the carrier’s receipt of the goods.
In The Athanasia Comninos [1990] 1 Lloyd’s Rep 277, 280 where the shippers were named in the bill, but the contract of affreightment had been made with the buyers, Mustill, J addressed an argument that it was the buyers who were participants in the contract of carriage by saying that, even if they were, it would make no difference to the shipper’s liability.
It is thus possible for both seller and buyer to be party to the contract of carriage, in which case it would be necessary to decide whether seller and buyer are to be regarded as joint principals; if not, who is agent for whom; and who is entitled to give orders for a change of consignee.
The defendants’ response is lengthy, repetitive, discursive and not always easy to follow, particularly in translation. But it appears to be contending (i) that B & D was the shipper and not Yekalon; (ii) that freight was paid either by Vernal (para 27) or B & D (para 36); (iii) that both Vernal and Yekalon appointed B & D to make the booking (para 32) ; (iv) that at some stage B & D received the goods from Yekalon and took them over for the account of Sonaec (para 33); (v) that a certificate of taking over was delivered to Yekalon who then ceased to be the owners of the goods (para 34); and (v) that B & D on account of Vernal instructed Maersk to load the containers (para 35).
None of this is supported by a witness statement or a statement of truth or by any supporting documents. Mr Brier submitted that in those circumstances I could ignore what was said, or treat it with extreme caution, not least because Gloster J’s reluctance to grant judgment in default gave the defendants the opportunity to file evidence and make submissions, of which they have not availed themselves.
At the same time, the account given in the response is broadly consistent with what the court in Benin has so far found; and with what was submitted to the Chinese court. Further I have no evidence from Maersk or their Chinese agents as to (i) how they came to issue (as they did) a bill of lading in this form; (ii) why it was issued to B & D and not to Yekalon or to someone on their behalf alone; (iii) who paid the freight; and (iv) whether Maersk has any knowledge of the “certificate of taking over” referred to in the response.
I am thus left in a position where the evidence (such as it is) on potentially important matters is in an unsatisfactory state; largely because the defendants have done nothing. If matters stood there I would, with a degree of reluctance, have declined to give any summary judgment. My reluctance arises from two things. Firstly, I suspect that the correct analysis is that Yekalon participated in the contract evidenced by the First Bill at least to the extent of being entitled to exercise the right of a shipper to change the consignee prior to the delivery of the goods to the buyers. Secondly defendants cannot usually escape summary judgment by raising points in a document which is not a pleading but failing to file any evidence or a statement of truth or to produce the relevant documents. At the same time, but for the consideration to which I refer in the next paragraph I would not regard it as satisfactory to give summary judgment on the present state of the material, and where potential evidence from Maersk is also lacking, not least because I doubt that a judgment given in those circumstances would provide much assistance to the Benin Court.
There is, however, another consideration which seems to me to be determinative. The Chinese court refused to order delivery up of the First Bill to B & D but ordered High Goal to hand over the complete set of papers concerning the First Bill and the containers listed in it to Yekalon, on the footing that Yekalon was the shipper of the containers and entitled to the First Bill. The First Bill was not a mere piece of paper. It was or represented the contract of carriage with Maersk. It did so by order of the Chinese court (which has never been set aside). The fact that it was compelled to do so does not alter the fact that the surrender took place. In those circumstances Yekalon became the party entitled to the rights of shipper under the Bill (those rights being subject to clause 26), even if it had not done so before, or only enjoyed them in some qualified sense. Those rights included a right to order the goods to be delivered otherwise than to the named consignee and to agree to the issue of a substitute Bill, as in the event occurred. Sonaec’s lawyer was right to think that the order of the Chinese court made all the difference.
There can be no doubt but that the Chinese court made the order to which I have referred. Nothing in the defendants’ response or elsewhere disputes what happened there; indeed the response does not mention the court’s decision; nor is it referred to in the judgment of the Benin Court. The fact that Yekalon acted as it did may or may not give Sonaec rights against Yekalon under the sale contract. But the fact that such rights may exist cannot affect the position under the contract of carriage.
Accordingly Maersk is, in my judgment, entitled to the second declaration, namely that any rights which any of the defendants may have had under the First Bill were brought to an end prior to 18th February 2008 when the First Bill was cancelled and replaced with the Second, and later the Third Bill of Lading. There is no real defence to Maersk’s claim to such a declaration nor any compelling reason why I should not grant it. Insofar as the claim for a declaration is made in proceedings against Mr Fadoul, I do not consider that the Court has any jurisdiction to make it since he is not party to any jurisdiction agreement. But there is no reason why I should not make a declaration in the form sought as between Maersk and the first two defendants.
I invite counsel to draw up an order to give effect to these conclusions.
Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd & Anor
[2012] EWHC 2107 (Comm) : [2013] 1 All ER (Comm) 177, [2012] 2 Lloyd’s Rep 594, [2012] EWHC 2107 (Comm)
Smith J
The Bills of Lading Claims
Although this was not the order in which counsel made their submissions, it is convenient first to consider the bills of lading claims. These are made by DBHH against Metinvest, to whom the bills were issued. As I have said, it is not in that dispute they were owners’ bills, that is to say they recorded or evidenced contracts under which DBHH, as owners of the “Bulk Chile”, undertook the carriers’ obligations. They named Metinvest as shippers of the cargo, and so evidence that Metinvest were the shippers: this was not disputed on the pleadings or at the trial. Accordingly, the bills of lading evidenced contracts of affreightment between DBHH as carriers and Metinvest (which I shall label the “bills of lading contracts”, notwithstanding the bills evidence rather than contain the contracts), and prima facie Metinvest were liable to pay freight to DBHH according to the terms of the bills of lading contracts: Scrutton on Charterparties (22nd Ed., 2011) art 185. That, as I say, is only a prima facie inference of the contractual position: as Hobhouse LJ emphasised in Cho Yang Shipping Co Ltd v Coral (UK) Ltd, [1997] 2 Lloyd’s Rep 641, it could have been displaced by evidence of a different contractual scheme, but there is no such evidence in this case. The fact that the bills of lading stated “freight prepaid” does not of itself show that Metinvest were not to be liable for freight which had not in fact been paid. As Hobhouse LJ said, loc cit at p.643, “Such words are not, in English law, words of contract … and their insertion in the bill of lading does not serve to negative a pre-existing, undischarged, contractual liability to pay freight”.
The bill of lading contracts provided that the freight payable by Metinvest was “payable as per [the voyage] charterparty”. This means that the terms of the voyage charterparty govern not only the amount of the freight payable by Metinvest but also the time of payment, the method of payment and who is to receive it: see India SS Co v Louis Dreyfus Sugar Ltd (The “Indian Reliance”), [1997] 1 Lloyd’s Rep 52. (The Gencon bills’ standard wording that incorporate the provisions of the voyage charterparty perhaps reinforce this, but add nothing.) The voyage charterparty did not expressly state to whom payment was to be made, but the implication is that it was to be made to Fayette as disponent owners. Accordingly Mr Happé submitted that the freight to be paid by Metinvest under the bill of lading contracts was to be paid to Fayette, and that DBHH were and are not entitled to require that it be paid to themselves.
A similar argument was considered in Tradigrain SA and ors v King Diamond Shipping SA (The “Spiros C”), [2000] 2 Lloyd’s Rep 319, a case in which owners claimed freight from shippers although the shippers had discharged their obligations to intermediate charterers in respect of freight payable under the sub-charter. Rix LJ agreed (at p.331) with the observation of Colman J at first instance that “… it has long been established that a shipowner can intercept to claim freight directly from the shipper at any time before it has been paid”. He referred to the decisions of Channel J in Wehrer v Dene SS Co., [1905] 2 KB 92 and of Greer J in Molthes Rederi Aktieselskabet v Ellermans Wilson Line Ltd, [1927] 1 KB 710. Of course, the contract recorded in the bill of lading could have provided that the owners had no right so to intervene and effect would have been given to such a provision, but Rix LJ said that the provision in the bill of lading contract that freight should be payable “as per charterparty” does not exclude the owners’ right to intercept freight. This is because, as stated in Chitty on Contract (30th Ed, 2008) Vol 1 para 18-073, where a contract provides for payment to a third party, it is a matter of the construction of the contract whether the promisee can unilaterally (ie without the consent of the promisor) demand that payment should be made to himself”, and Rix LJ considered that “the typical case of the bill of lading in which freight is payable as per charterparty is probably such a contract”.
The right of the owners to intercept or to intervene so as to require payment to themselves is distinct from any right that they might have to a “lien” over freight. However, in The “Spiros C” the head charterparty was on the 1946 NYPE form and included clause 18, and Rix LJ observed (at loc cit p.332) that his analysis would be “entirely consistent with the regime under the time charter, under which the lien over sub-freight is, in the event of a default under the charter, to be subject to the shipowner’s claim”. As I understand the analysis of Rix LJ, the right of owners to intervene to have freight under their contract with shippers paid direct to themselves does not depend upon whether the charterers under the head charterparty have defaulted in paying hire or whether sums have “accrued due” (in the terms of clause 18 of the 1946 NYPE form) under the head charterparty. Unless the contractual arrangements expressly or impliedly so provide, payment to the charterers does not discharge the shippers’ liability for freight, and upon Rix LJ’s interpretation of the “typical case of the bill of lading in which freight is payable as per charterparty” the contractual arrangements cease so to provide once the owners have demanded of the shippers that payment be made to themselves (or not to the charterers).
Mr Happé submitted that Rix LJ’s analysis was by way of obiter dictum, that it is wrong and that I should not follow it, notwithstanding that Henry and Brooke LJ agreed with the judgment. I agree that Rix LJ’s observations were not part of the ratio of the case in that in The “Spiros C” the claim of the owners depended upon them showing both (i) that arrangements between the shippers and the charterers had not discharged the obligation to pay freight before they demanded payment to themselves, and (ii) that they could effectively intervene by demanding payment to themselves: and, since the shippers succeeded on the first point, the answer to the second question was of no consequence. But this does not much detract from the weight of the case as precedent: in Cross and Harris, Precedent in English Law (4th Ed, 1991) at p.77, it is said of the position where litigation between A and B involves two points of law and a decision on either in favour of A obliges the court to give judgment for him: “If an appellate court decides one point in favour of A, and the other in favour of B, the decision on the second point is obiter if the ratio decidendi of a case must be a proposition of law upon which the order of the court is based. Yet it is difficult to believe that the decision would not have coercive effect so far as lower courts are concerned.” This properly states the authority of the judgments in The “Spiros C” over my decision, notwithstanding that Rix LJ stated (loc cit at para 58) that he preferred to rest his decision on the question about how the arrangements between the shippers and the charterers affected the owners’ rights. I recognise that the views of Rix LJ were questioned by Aikens et al, Bills of Lading (2006), who commented (at para 12.50) as follows: “It is … unclear from this decision whether on this analysis [the owners] can redirect payment of the freight at any stage or, if not, what event triggers such a right. The law on this point is unclear and it is respectfully submitted that the dictum needs to be treated with some caution”. But I do not think that it would be proper for me to depart from a precedent of this weight, even if I doubted it. In any case I would respectfully subscribe to the analysis of Rix LJ, of which Mr Happé made no specific criticism and which seems to me convincing.
However, Mr Happé also submitted that DBHH did not effectively intervene to demand payment of the freight to themselves and so did not prevent the payment by Metinvest to Fayette on 12 April 2011 from discharging their obligations to DBHH to pay freight. He did not dispute that, if DBHH did effectively demand payment to themselves before 12 April 2011, any payment to Fayette after the demand had been made cannot avail them: if they made payment after a demand, the payment would not, of course, be made in breach of the contractual arrangements with DBHH – Metinvest were entitled to pay Fayette what they wanted – but it did not discharge their obligations under the bills of lading contracts.
Mr Happé had two arguments. The first was that the First and Second Notices did not on their proper interpretation make such a demand under the bills of lading contracts. No particular form or wording is required for a demand or notice of intervention of this kind, provided the meaning is plain, but Mr Happé argued that both notices only made demand under clause 18 of the KLC charterparty and not under the bill of lading contracts. DBHH called the First Notice a “Notice of Lien” both in the heading and repeatedly in the body of the notice, including in the words introducing the first request and the second request. The heading of the Second Notice, which was sent after the vessel had started to load, indicates that DBHH’s purpose in sending it was to assert their lien over cargo, as well as over the freights and hires that were the subject of the First Notice.
I recognise the force of this argument. However, DBHH’s second request in the First Notice was that Metinvest arrange “payment of all such freight(s) and/or Hire(s) in [their] hands directly to [DBHH’s] account when due …”, and the expression “such freight(s) and/or hires(s)” refers to the first request in which they ask that Metinvest confirm the amount of “freight(s) and/or hire[s] due from you under any charters, bills of lading, or other contracts of carriage”. This covers freight payable under bills of lading contracts, and therefore on its face the second request is wide enough to cover freight falling due under any bill of lading contract made by Metinvest. DBHH (and CSAV) could not have any lien over freights under bills of lading contracts unless, perchance and improbably, charterers’ bills entitling Fayette to payment of freight had been issued, and to interpret the notices as directed only to rights of lien would, effectively, deprive of any effect the references in the First Notice to bills of lading.
This consideration seems to me a more powerful indication of the intended meaning of the First Notice (and of the repetition of the second request in the Second Notice) than DBHH’s description of it as a “Notice of Lien”. If a legal principle is needed to support this interpretation, I would invoke falsa demonstratio non nocet cum de corpore constat – the expression “Notice of Lien” being what Lord Hoffmann might call a misleading car number plate: see Synthon BV v Smithkline Beecham plc, [2005] UKHL 59 at para 37. This interpretation means that the description was incomplete, if not inaccurate, but it is not, in my judgment, significantly misleading. It is perhaps the less remarkable given that the typical purpose of owners intervening to require payment to themselves of bills of lading freight is to secure their position when the financial standing of intermediate charterers is uncertain. In The “Spiros C”, [1999] 2 Lloyd’s Rep 91, 96 Colman J drew an analogy between the two regimes (as Rix LJ observed at [2000] loc cit at para 52).
I add that, although it is couched in terms of a “request” that freight under the bills of lading contracts be made to DBHH, the First Notice makes clear that Metinvest could no longer discharge their obligations to pay bills of lading freights by paying Fayette: in commercial reality, it amounted to a demand for payment. In any case, if there be doubt about that, the Second Notice was expressed in terms of what DBHH “require[d]” and puts this beyond dispute.
Mr Happé’s second argument was that the First and Second Notices were not effective to “intervene” to require payment of freight to DBHH because DBHH could give notice only when money was overdue to them under their contractual arrangements for the carriage, and they have not showed, it was said, that by 1 February 2011 that there was overdue “at least US$742,975”, the amount mentioned in the First Notice. There is nothing in this point. First, an owner is not entitled to intervene to have freight paid to himself only if money is overdue to him in respect of the carriage. Of course, the right is usually exercised in these circumstances: in Federal Commerce and Navigation Inc v Molena Alpha Inc (The “Nanfri” etc), [1978] 1 Lloyd’s Rep 581, 591 Kerr J referred at first instance to clause 18 providing “additional remedies” in the event of default in the payment of hire, and at first instance in The “Spiros C” Colman J spoke of freight under a bill of lading contract being intercepted “if a disponent owner defaults under the head charter”. But I do not understand them to intend to define or restrict the circumstances in which owners can intervene. Colman J was seeking to draw the analogy with rights of lien that Rix LJ explained in the Court of Appeal: loc cit at para 52. There is no reason of principle that the right to intervene should be restricted as Mr Happé suggested.
In any case, when the First Notice was sent on 1 February 2011, money was overdue in respect of the hire from 18 January 2011 to 2 February 2011. I have rejected Mr. Happe’s submission that the invoice for this hire had not been delivered to KLC, but, even if it had not been, this would not affect the position: the hire would still have been overdue whether invoiced or not. I accept that the hire for the period from 2 February 2011, although falling due on 1 February 2011, was not overdue when the First Notice was sent, but that does not mean that the notice was in any way inaccurate. The First Notice stated (i) that KLC had failed to pay hire due and owing “In breach of charter”; and (ii) at least $742,875 was due and owing to Owners “at the date of this notice”. It did not state that KFC were in breach of charter in failing to pay at least $742,875. Moreover, even if it had implicitly asserted that KFC had failed in breach of contract to pay at least $742,875, I cannot accept that therefore the notice would be vitiated so as to be of no effect. Finally, even if First Notice were so vitiated, by 5 February 2011, when the Second Notice was delivered, the hire for both the period from 18 January 2011 and the hire for the period from 2 February 2011 were overdue and valid notice of intervention in respect of the bills of lading freight was given thereby.
I reject therefore the various arguments advanced on behalf of Metinvest in answer to the bills of lading claims, and I uphold them.
The Lien Claims
I come to the lien claims: CSAV make a lien claim against Fayette for hire payable by them under the trip charterparty and against Metinvest for freight payable by them under the voyage charterparty. (The KLC charterparty was made by DBHH as agent for CSAV, their undisclosed principal: as I see it, CSAV have intervened to assert their rights under the KLC charterparty and they, rather than DBHH, are the proper claimants to pursue these claims. However, there is no issue between the claimants and I did not hear submission about this.) In relation to these claims there are issues between the parties about (i) the proper meaning of clause 18 (“interpretation issues”); (ii) whether the notices given to Fayette and to Metinvest are sufficient to invoke rights under clause 18 (“notice issues”); (iii) whether a lien over “sub-freights” under clause 18 can effectively be invoke before they fall due; and (iv) whether any rights that CSAV have under clause 18 are defeated or curtailed by orders of the Seoul Court (“Korean proceedings issues”).
The main issue of interpretation is whether clause 18, properly interpreted, provides for a lien over sub-hire, or whether it applies only to freight, a question about which Lloyd J and Steyn J disagreed in Care Shipping Corp v Latin America Shipping Corp (The “Cebu”) (No 1), [1983] QB 1005 and Care Shipping Corp v Itex Itagrani Expert SA (The “Cebu”) (No 2), [1993] QB 1. In The “Cebu” (No 1) Lloyd J concluded that the reference in clause 18 to “sub-freights” is properly understood to cover sub-hire, that is to say, hire payable under a trip charterparty of the m/v “Cebu”, which was the last of a chain of four charterparties. He rejected an argument that a distinction should be drawn between sub-freight and sub-hire. He pointed out that, while freight “in the strict sense” refers to sums earned under a bill of lading contract or a voyage charterparty, usage going back to the nineteenth century included so-called “time freight” or freight under a time charterparty, referring in this context to the speech of Lord Blackburn in Inman SS Co Ltd v Bischoff, (1882) 7 App Cas 670, 678; and he observed a tendency in the twentieth century to assimilate the rules governing voyage charters and time charterers (notwithstanding the judgments in the Court of Appeal in The “Nanfri” etc, [1978] QB 927). Lloyd J declined to give clause 18 a construction that would mean that the owners’ security depended upon whether the sub-charter was a trip charterparty or a voyage charterparty: loc cit at p.1012F. Mr Bignall submitted that he was right to do so, observing that such a distinction would be particularly surprising in the context of a long-term charterparty such as the KLC charterparty where there was a real possibility of the vessel being sub-chartered for substantial periods either on time charterparties or on trip charterparties.
However, in The “Cebu” (No 2) (loc cit) Lloyd J’s view was rejected by Steyn J, whose judgment Mr Bignall analysed critically. He identified these six reasons given by Steyn J for not following Lloyd J’s decision.
i) Steyn J distinguished (loc cit at p.13F) what was said in the Inman SS case because there the term “freight” was used in an insurance contract, in which context it has a specialised and wide meaning. But Mr Bignall argued that the wider meaning has been recognised elsewhere, citing by way of example the judgment of Donaldson J on Seven Seas Transportation Ltd v Atlantic Shipping Co SA, [1975] 2 Lloyd’s Rep 188, 191.
ii) Steyn J observed (at p.12B) that, while the wide usage of “freight” continued “well into [the 20th] century”, there had clearly been a change in the use of the word “in modern times”. Mr Bignall submitted that the parties to the KLC charterparty must be taken to have known that they were adopting the 1946 NYPE form and to have expected that it would be given the meaning that the form had when it was introduced.
iii) The use of the word “hire” elsewhere in the charterparty, in Steyn J’s view, not only meant that the NYPE form provided no reason to “stretch” the meaning of “freight” to cover hire, but indicated the contrary: see p.14B/C. This observation loses some of its force when it is recognised that the “wider” usage of the term “freight” would not mean that the NYPE form uses two different terms (“hire” and “freight”) with the same meaning, but that it uses the expression “freight” in a generic sense that includes hire.
iv) Next, Steyn J cited the observation of Lord Wilberforce in The “Nanfri” etc, [1979] AC 757, 777G that in construing the NYPE form clause 18 should not be given too much force, and said (at p.14G) that “The fact that [clause 18] had no operative effect if the subcharter is a time charter does not by itself warrant any stretching of the language of clause 18”. However, this does not answer Lloyd J’s point that the more businesslike interpretation of clause 18 would give it effect whether the sub-charter is a voyage charterparty, a trip charterparty or a time charterparty.
v) Steyn J considered (at p.15A) that a factor militating against an extended meaning being attributed to the term “sub-freights” would be that the accounting would be more complicated under a time charterparty than a voyage charterparty. But the 1993 NYPE form expressly provides for a lien over hire, which indicates that the shipping trade does not consider any complexity of accounting would make a lien over hire unmanageable or undesirable.
vi) Finally, Steyn J took account (at p.16B) of the fact that third parties are affected by a lien clause in a charterparty, and that “Only a clear lien clause should be enforceable against the third party”. Mr Bignall observed that, whatever its interpretation, the operation of a lien clause inevitably can present third parties with decisions of the kind that concerned Steyn J.
I pay tribute to the care of Mr Bignall’s analysis and recognise that it has considerable force. In the absence of authority I should have given clause 18 the wider interpretation and concluded that the term “sub-freights” covers “sub-hire”. However, given that there are two conflicting decisions at first instance and the later fully considered the earlier decision, I must follow the later decision unless there are cogent and convincing reasons to do otherwise: see In re Lune Metal Products Ltd in Administration, [2006] EWCA 1720 (Civ) at para 9 and Ferrexpo AG v Gilson Investments Ltd and ors, [2012] EWHC 721 (Comm) at para 165. I do not consider the proper meaning of clause 18 to be so clear that I should reject the interpretation that Steyn J preferred: the criticisms of his reasoning are not so compelling as to justify that. I therefore conclude that the lien clause does not, on its proper interpretation, provide for a lien over the hire payable by Fayette under the trip charterparty.
There appeared at the start of the trial to be another issue about the meaning of “sub-freights” in clause 18: whether it includes sub-sub-freights (that is to say freight due under a sub-sub-charterparty, where, as here, there is a chain of at least three charterparties). However, in his oral submissions Mr Happé made it clear that Metinvest do not dispute that the term covers sub-sub-freights: Lloyd J so decided in The “Cebu” (No 1) case (loc cit at p.1013A) and Mr Happé’s concession was correctly made. I must therefore consider whether Metinvest have another answer to the lien claim against them.
Lloyd J explained that, since the lien under clause 18 operates where there is a single sub-charterparty by way of an equitable assignment of the right to freights payable under it, so too the law can and does give effect to the parties’ intention where there is more than one sub-charterparty by recognising “a chain of equitable assignments”, the assignee of the right to be paid sub-sub-freights assigning that assigned right up the chain. This analysis was not disputed before me. The parties in this case all accepted that a lien over sub-freights operates by way of an equitable assignment of the right to be paid them or, in the case of sub-sub-freights, a chain of assignments; and so the lien confers on the assignee a right against the person liable to pay the sub-freights (“the debtor”); and, even if this analysis had not been so accepted, the weight of first-instance authority in support of it would require me to adopt it. This view was most recently endorsed by Christopher Clarke J in Western Bulk Shipowning III A/S v Carbofer Maritime Trading ApS and ors, [2012] EWHC 1224 (Comm) at paras 32-52. He rejected the argument that the “lien” confers only a personal, contractual, non-possessory right of interception (see Dr Fidelis Oditah’s article, “The Juridical Nature of a Lien on Sub-Freight”, [1989] LMCLQ 191 and Agnew v CIR, [2001] 2 AC 710 per Lord Millett), and preferred the view that clause 18 takes effect as an assignment by way of charge, or at the least (for that was sufficient for the purposes of the application for the continuation of a freezing order that was before him) that this analysis was “well arguable”. Thus the position is rightly stated in Time Charters (6th Ed, 2008) para 30.11: “The right of the owners under … the [NYPE] form to intercept sub-freights extends to sub-freights due to sub-charterers – and not therefore payable to the time charterers direct – if, under the terms of the sub-charter, the time charterers have similar rights of lien to those given to the owners under the head charter”. That condition is met here.
It was also argued that the lien claims should be rejected because the notices given by DBHH were defective. There is ample authority (referred to by Christopher Clarke J in the Western Bulk Shipowning case) that refers to the need for notice if the lien under clause 18 is to be invoked. For example, in The “Nanfri” etc, (cit sup at p. 591) Kerr J referred to the lien being exercised by “giving the appropriate notices”; and in the House of Lords Lord Russell of Killowen said (loc cit at p.784G) that the lien “operates as an equitable charge upon what is due from the shipper to the charterer, and in order to be effective requires an ability to intercept the sub-freight (by notice of claim) before it is paid by shipper to charterer”. Christopher Clarke J (loc cit at para 37) said that the assignment of the debt owed to the lienor means that “The debtor, once he has notice of the lien, may not make payment to his creditor if the obligation to the lienor is unpaid”.
Mr. Happé submitted that the First Notice did not give the notice required in order to exercise the lien, because it was defective or ineffective in that (i) it mis-stated the amount due to DBHH; (ii) it did not explain how the sum claimed is made up; and (iii) the First Notice wrongly claimed that KLC were in breach of the KLC charterparty in that they had failed to pay $742,875. These submissions are apparently based on the judgment of Scrutton LJ in Albemarle Supply Co Ltd v Hind & Co, [1928] 1 KB 307, a case in which garage owners claimed a lien over taxicabs in respect of repairs that they had done. He said, at p.318:
“A person claiming a lien must either claim it for a definite amount, or give the owner particulars from which he himself can calculate the amount covering the lien really existing. If he does not, unless excused, he has no answer to a claim of lien. He may be excused from tendering (1) if he has no knowledge or means of knowledge of the right amount; (2) if the person claiming the lien for a wrong cause or amount makes it clear that he will not release the goods unless his full claim is satisfied, and that claim is wrongful. The fact that the claim is made for more than the right amount does not matter unless the claimant gives no particulars from which the right amount can be calculated, or makes it clear that he insists on the full amount of the right claimed.”
I do not consider that this authority assists the defendants in this case. First, Scrutton LJ explained that the owners of goods subject to a lien are “excused” from tendering the amount required to free them from the lien if he did not do so because person claiming the lien had not told him the amount and he did not and could not know it: he said (at p.319) that the owners of the taxicabs could not defeat the lien by this argument because they “did not tender because they thought their agreement prevented the creation of a lien, not because they could not ascertain what repairs were done”.
In any case, Scrutton LJ was concerned with the position under a possessory lien. A lien over sub-freights is different in kind and Scrutton LJ’s reasoning has no application here. As Robert Goff J observed in Ellerman Lines Ltd v Lancaster Maritime Co Ltd and ors (The “Lancaster”), [1980] 2 Lloyd’s Rep 497, 501, clause 18 of the NYPE 1946 form provides for three liens (for owners’ liens over (i) all cargoes and (ii) sub-freights and for a charterers’ lien over the ship), and they are different in kind, only the owners’ lien over cargoes being a straightforward possessory lien (unless the charterparty is a demise charter so that the charterers have possession of the ship).
Nevertheless, Mr Happé’s submission requires me to consider the nature of the notice required to invoke the lien over sub-freights. In the case of statutory assignments under section 136 of the Law of Property Act, 1925, the debt or other chose in action is transferred only if notice in writing of the assignment has been given to the debtor or other obligee, and the notice is not effective if the notice mis-states the date of the assignment or, it seems, the amount of a debt transferred. These requirements must be strictly complied with because they directly concern the transfer of title: see W F Harrison & Co Ltd v Burke, [1956] 1 WLR 419, 421. However, I see no good reason to apply these strict rules (which have been criticised with some force: see R Munday, Notice of Legal Assignment, 131 NLJ 607) in this case. The rules in equity have never been so strict (see, for example, Whittingstall vKing, (1882) 46 LT 520 and the note of Mr R E Megarry QC in 72 LQR 321). An equitable assignment transfers title without notice of it being given to the debtor, but payment to or settlement with the assignor before the debtor receives notice of the assignment discharges the debt, and for this reason an assignee might wish to give the debtor notice of it. (Notice to the debtor also means that he cannot set up against the assignee new and independent equities that arise between him and the assignor and gives that assignee priority over any subsequent assignees under the rule in Dearle v Hall). However, for notice of this kind no particular formality is required and “The language is immaterial if the meaning is plain”: see Lord Macnaughten in Wm Brandt’s Sons & Co v Dunlop Rubber Co, [1905] AC 454, 462 and Mackinnon LJ in James Talcott Ltd v John Lewis & Co Ltd, [1940] 3 All E R 592, 595D/E. This is well illustrated in a shipping context by Smith v Owners of SS “Zigurds”, [1934] AC 209. Where the assignment is by way of the crystallisation of a floating charge, the assignment is effective against the debtor not when the debtor receives only notice of the charge but also notice of the crystallising event and so notice of the assignment: Business Computers Ltd v Anglo-African Leasing Ltd, [1977] 1 WLR 578, 582A/B; Lightman & Moss, The Law of Administrators and Receivers of Companies (5th Ed, 2011) para 22.061. But again no particular form of words is required so long as the meaning of the notice is clear.
But sub-charterers who owe sub-freight under a voyage charterparty can usually discharge the obligation by paying intermediate charterers rather than the owners even if they have (actual or constructive) knowledge that the head charterparty includes a clause such as clause 18 whereby the owners have a “lien” over sub-freights. For one thing, the lien under clause 18 is by way of security and is for an “amount due”, and the lien “can be exercised only in respect of hire already accrued due at the time the sub-freights are liened”: Time Charters (cit sup) para 30.38; see too Scrutton on Charterparties, cit sup, para 16.014. There is no reason that sub-charterers should be aware whether an amount is due under the head charterparty. As Kerr J said in The “Nanfri” etc (loc cit) at p.591, the operation of the lien must be limited by reference to normal shipping practice, and, until the lien is invoked, freight is normally paid to the intermediate charterers whether or not the sub-charterers have notice of a lien provision.
The lien is, as Christopher Clark J said, by way of a charge, and its operation can be seen to be in some ways analogous to that of a floating charge in that the shared assumption of the parties is that until the lien is invoked the parties will carry on business in the ordinary way. The analogy with the floating charge breaks down in that, as Lord Millett observed in Agnew v CIR, [2001] loc cit at para 41, clause 18 does not state a crystallising event and indeed Lord Millett said that it is incapable of “crystallisation”. What is required in order for the lien to be invoked is, as Lord Russell said, that the owners make a claim against the debtor, that is to say that they intervene or intercept the payment of the freight with a demand that it be paid to them under clause 18: hence the analogy with notices that owners can give shippers under bills of lading contracts, to which Rix LJ referred in The “Spiros C” (loc cit) at para 52.
Therefore, in my judgment effective notice to invoke the lien is given if the sub-charterers are informed (in one or more communications) (i) that the owners are assignees of debts owed (or to be owed: see para 61ff below) by the sub-charterers; (ii) what debts are so assigned; (iii) that an amount is due to the owners under the head charterparty; and (iv) that the owners require that the assigned debts be paid directly to them. No particular form of words is required for conveying the information. The First and Second Notices meet these requirements. The First Notice asserted that an amount was due to the Owners from KLC under the KLC charterparty and that they had a lien over “any balance of freight(s) … due under any charters … relating to the voyage”. This could not reasonably be understood to refer only to money due at the time of the notice: see para 63. As I have said in the context of the bills of lading claims, I consider second “request” amounted to a demand for payment or a requirement that the sub-freights be paid to the Owners rather than intermediate charterers although it was couched in terms of a request, and in any case the Second Request put the position beyond doubt.
I do not accept that any of Mr Happé’s criticisms of the First and Second Notices means that they were ineffective either to give Metinvest notice of the assignments of the right to be paid the freights payable under the voyage charterparty or to demand their payment (when they fell due) to DBHH.
i) I do not consider that the First Notice mis-states the amount under the KLC: see para 44 above. Even if it did, this would not be material. In my judgment, what was required was that Metinvest be informed that there was an amount due, not how much was due, and (whatever the position with regard to statutory assignments) I do not accept that an error in unnecessary information vitiates a notice invoking the line over sub-freights.
ii) DBHH did not have to provide Metinvest with an explanation or breakdown of their debt, or even the amount of it. The failure to do so does not affect the validityof the notices.
iii) I do not consider that the First Notice wrongly asserted that KLC had failed to pay $742,875 in breach of the KLC charterparty, but, even if it had done so, this error would not have vitiated it.
This leaves the question whether effective notice could not be given in respect of freights which were to fall due after the notice had been given. The question arises because freight under the voyage charterparty did not fall due until two banking days after the completion of loading and so after the First and Second Notices had been given. Mr Bignall did not contend that thereafter Metinvest were given any relevant notice before they paid Fayette on 12 April 2011. Three questions fall for consideration: (i) whether on the proper interpretation of clause 18 it was agreed that the Owners should have a lien over sub-freights that had not yet fallen due; (ii) whether the First Notice or Second Notice purported to cover sub-freights that had not fallen due; and (iii) whether the law allows assignees to give debtors effective notice of assignments before the assigned debt has fallen due.
Mr. Happé submitted, however, that, properly interpreted, clause 18 means that the right against Metinvest to be paid sub-freights under the voyage charterparty was assigned (by Fayette to KLC and then by KLC to CSAV) only when they are due for payment. I cannot accept that the parties intended clause 18 to be limited in this way. It is clear from the judgment of Lloyd J in The “Cebu” (No 1), loc cit at p.1016, (who cited the judgment of Mathew LJ in Hughes v Pump House Hotel Co Ltd, [1902] 190, 194-195) that this does not follow from the lien being by way of security. There would be no commercial justification for this interpretation of the clause, and the law recognises an assignment by way of charge over future debts: see Picarda, The Law relating to Receivers, Managers and Administrators (4th Ed., 2006) p.106. Beale, Bridge, Gullifer and Lomnicka, The Law of Personal Property Security, (2nd Ed, 2012) observe with regard to floating charges at para 6.79, “As a general rule, if the floating charge covers future assets, assets within the description of the charged future assets which accrue to the company after crystallization will fall within the crystallized charge”. The position is, to my mind, similar here: when the KLC charterparty and the trip charterparty were made, the sub-freights to which they referred were necessarily future assets, and the clause was intended to cover them. Mr. Happé observed that the lien over cargo conferred by clause 18 operates only when cargo is loaded, but that is because it takes effect as a possessory lien. This is not, to my mind, an indication of the parties’ evinced intention as to the sub-freights to which clause 18 was to refer.
As I interpret the First Notice, it is clear that it is directed to sub-freights that might fall due after its receipt and not only to any sub-freights that might be due when it was received by Metinvest. It asserted that the Owners had a lien over “any balance of freight(s) … due under any charters … relating to the voyage”, but this could not, in my judgment, reasonably be understood to refer only to money due at the time of the notice because the second request called upon the recipient to make payment of “such freight(s) … when due”.
Mr Happé did not develop his argument that the law does not allow assignees to give debtors effective notice of assignments before the assigned debt has fallen due, and cited no authority in support of it. I reject it, although generally notice of assignment can be given only at the time of an assignment or afterwards: see Beale, Bridge, Gullifer and Lomnicka, The Law of Personal Property Security, loc cit, para 7.99. They observe that the position is less clear where, as here, there is an agreement to assign future debts, but refer to a dictum of Baggallay LJ in Roxburgh v Cox, (1881) 17 Ch D 520, 527 that suggests that in these circumstances too effective notice cannot be given before the assigned debt is due.
In Roxburgh v Cox an army officer had, in order to secure a loan, assigned commission that was to be paid to him when his retirement from the services was gazetted, but the commission was paid into his overdrawn bank account before the assignee gave notice to the bank. It was held that the notice was too late for the assignee to dispute the bank’s claim of set-off. Baggallay LJ said this (at p.527):
“It is admitted here that there was no notice whatever given to [the debtor] of the present claim of the [assignee] until the morning of the 19th of December, and, in point of fact, any notice given by him before the money came into the possession of [the debtor] would have been ineffectual, as was decided in the case of Somerset v Cox …, which has been repeatedly recognised and followed. There was therefore no notice given by the [assignee] to [the debtor] before the morning of the 19th which could have created a valid charge on the money in the hands of [the debtor] and this was after the right of set-off had arisen.”
Somerset v Cox (1865) 33 Beav 634 was another case in which an army officer charged the proceeds that might arise from sale of his commission. These and other army commission cases were explained by P O Lawrence J in Ipswich Permanent Money Club v Arthy, [1920] 2 Ch 257, 270, who pointed out that they are of “the class of cases dealing with assignments of future property, expectancies and possibilities”. The entitlement to freight, once the voyage charterparty had been concluded, is a present chose in action: see Colonial Bank v European Grain & Shipping Ltd (The “Dominique”), [1988] 1 Lloyd’s Rep 215, 221, in which Mustill LJ said when considering freight:
“All contractual rights are vested from the moment when the contract is made, even thought they may not presently be enforceable, either because the promisee must first perform his own part, or because some condition independent of the will of either party (such as the elapsing of time) has yet to be satisfied. Equally, all unperformed obligations to pay money are in one sense debitum in praesenti solvendum in futuro.”
(The decision of the Court of Appeal in this case was reversed in the House of Lords ([1989] AC 1056), but not on this point.)
The dictum of Baggallay LJ was directed to future debts, not existing choses, and it does not, to my mind, support the challenge to the First and Second Notices. There seems to me to be no reason in principle that notice given before a debt falls due should not be effective (if not for the purpose of determining priority between assignees and chargees or even, possibly, for determining questions of set-off, at least for the purpose of preventing the debt being discharged by payment to the party who agreed to assign it). Wood, English & International Law of Set-Off (1989) at para 16-119 expressed the view (to which I would subscribe) that such a rule about future interests would be “arbitrary and out of accord with realities” with regard to set off, and that an assignee of present and future claims ought to be able to give advance notice to protect himself. The objections to such a rule with regard to whether assigned debts are discharged by payment to the assignor are all the more compelling, but in any case there is no such rule where an existing chose is assigned. As Mr Bignall observed, if the lien over sub-freights could be invoked only once they were due, this part of clause 18 would be emasculated: owners do not usually know when sub-freights fall due and are not realistically in a position to intervene before sub-charterers who pay their debts promptly make payment to the intermediate charterers. I conclude that the First and Second Notices were effective with regard to the sub-freights that fell due after the cargo was loaded.
I come to the Korean proceedings issues: Mr Happé submitted that “the purpose of the procedure put in place in Korea and given effect to by the Court Orders was to prevent alleged creditors, such as the owners, from gaining advantage at the expense of the generality of KLC’s creditors”, and that “The Court should be unwilling to permit such an advantage”. However, he accepts that the orders of the Seoul Court did not, as Mr Choi and Mr Kim agreed, have extra-territorial effect or purport to do so. In any case, the orders of the Seoul Court provide no answer to the lien claims (or to any of the claims in these proceedings).
Mr Happé’s argument is based upon an observation of Mr Kim that the Comprehensive Stay Order was designed to suspend creditors’ compulsory enforcement, which is defined in article 44 of the DRBA as meaning, among other things, “the compulsory auction sale proceedings for the execution of security interests”. Mr Kim said that, “Even though the Sub-hire Lien is characterised as a security interest, it is not clear to say that the notice sent out for execution of such a right can be covered by the compulsory auction sale proceedings for the execution of security interests and there appears no court precedent available in this respect”; but that in view of the purpose of the DRBA to prevent “any instance where the purpose of the rehabilitation proceedings may not be sufficiently achieved due to unsecured and secured creditors’ independent and separate enforcement of their rights … there is a basis to judge that the creditors’ enforcement action for executing security interest is generally prohibited, in addition to the simple auction sale proceedings”.
Mr Kim’s suggestion of such a purposive construction of the statute is advanced in tentative terms. Mr Choi firmly rejected it in a report in response dated 22 June 2012, and cited in support of his opinion the views of the Bankruptcy Division of the Seoul Court published by them in “Practice in Rehabilitation Cases”. His opinion is in line with a decision of the Seoul Court of 21 December 2011 in case no 2011 Hoehwak 382. I cannot accept that Mr Kim’s suggestion represents the present state of Korean law, and I conclude that the orders of the Seoul Court afford the defendants no answer to the lien claims. I uphold the lien claim against Metinvest.
The Post-Withdrawal Claims
The post-withdrawal claims are put in three ways:
i) That Fayette are liable to pay hire of $24,000 per day (the rate of hire payable under the KLC charterparty) under a contract made in exchanges between DBHH and Fayette or in the exchanges together with Fayette’s conduct in continuing to accept the vessel’s services.
ii) That Fayette (expressly or impliedly) requested the services of the vessel to complete the voyage and to discharge the cargo, and are therefore contractually liable to pay $23,000 per day for the requested services on a quantum meruit basis.
iii) That Fayette and Metinvest (or one of them) are liable to pay a quantum meruit of $23,000 per day for use of the vessel from 26 February 2011 to 10 March 2011.
Before any contract might have been made and any relevant use of the vessel, CTM stated that DBHH’s principals were CSAV, and CSAV and not DBHH are entitled to bring the post-withdrawal claims.
By the email of 19 February 2011 CSAV offered that, if they withdrew the “Bulk Chile” from KCL, they would complete the voyage and discharge the cargo in consideration of Fayette complying with the First and Second Notices and confirming that they would pay hire from the date of withdrawal. The implication of the email is that the hire would be at the rate payable under the KLC charterparty: Mr Bignall so contended and Mr Happé did not dispute this. As I have said, Fayette did not accept that offer: in their reply on 23 February 2011 they disputed the validity of the First and Second Notices and did not agree to pay hire to CSAV (at the rate of $24,000 per day or at any rate). Nor can I accept that Fayette accepted the offer simply by accepting the vessel’s services: given that the cargo was on the vessel when it was withdrawn and in view of the express statement on 23 February 2011 that the validity of the notices of lien was in dispute, their conduct did not evince an intention to accept the offer (still less unequivocally do so).
The claimants’ pleaded case is that the contract for the continuing hire of the vessel at $24,000 per day was made in the communications between 18 and 23 February 2011 or in those communications together with Fayette’s “conduct in continuing to accept the Vessel’s services”; and for the reasons that I have explained I reject the pleaded case. Mr Bignall advanced other unpleaded contentions. (Mr Happé so observed in his written argument, but no application was made to amend.) I consider them no more convincing than the pleaded case.
Mr Bignall submitted that the email of 1 March 2011 contained or evidenced Fayette’s agreement to pay hire for the period after the vessel was withdrawn. I accept that in it Fayette presented themselves as charterers of the “Bulk Chile”: they so described themselves and they gave notice of redelivery of the vessel. However, I cannot accept that they thereby agreed to hire the vessel on the terms of the email of 19 February 2011 – they had, after all, expressly rejected those terms, including CSAV’s insistence that they comply with the notices of lien – and there is no suggestion that CSAV ever offered them the vessel on any other terms.
However, Mr Bignall had another argument, which was based on the email of 5 March 2011 to the master. He did not contend that the email itself contains an agreement by Fayette to hire the vessel or to accept any offer of CSAV, but he contended that I should infer from it, and in particular from the statement that the charterers (that is to say, as I understand it, Fayette) “confirmed to the owners that all hire due to the vessel under their [charterparty] could be transferred to the owners, DBHH”, that they had agreed with DBHH or CSAV to hire the vessel. This, he said, would explain why they presented themselves as charterers of the vessel in the email of 1 March 2011 and is consistent with the reference to “contractual obligations” in the messages to the master on 5 March 2011. I do not draw that inference. No communication in which Fayette confirmed their acceptance of an agreement of this kind is in evidence, and there is no sensible explanation for this if such confirmation were given. It is not clear to what Fayette were referring in their messages to the master, but, as I have said, most likely they were referring to the bills of lading contracts, or possibly they were alluding to their willingness (stated on 3 February 2011) to pay the hire under the trip charterparty to DBHH if KLC agreed to them doing so: after all, in the first email of 5 March 2011 refers to the charterers paying the hire under “their” charterparty, which I would understand to mean the trip charterparty. It suffices that I do not consider that there is a sufficient basis to infer that Fayette agreed to pay hire at the rate in the KLC charterparty.
I therefore reject the contractual post-withdrawal claim for hire of $24,000 per day. I come to the claim for payment on a reasonable remuneration on the basis that Fayette expressly or impliedly requested the vessel’s services. Mr Bignall relied upon the decision of Robert Goff J in Tropwood AG of Zug v Jade Enterprises Ltd (The “Tropwind”) (No 2), [1981] 1 Lloyd’s Rep 45. In that case owners had purported to give notice of withdrawal of a vessel but, after the charterers disputed its validity, the vessel loaded more cargo and proceeded to the delivery port for that cargo and discharged it there. Robert Goff J, having decided that the notice of withdrawal was valid and effective, determined that the charterers were liable to pay for use of the vessel after her withdrawal at the market rate. He said this (at p.53): “… the first question to be asked is whether the services were rendered at the request (express or implied) of the charterers, in which event the charterers will ordinarily be liable to pay a reasonable remuneration for the services rendered, a liability which can probably be categorized as contractual. If however there was no such request, then there can be no contractual liability on the charterers; and their liability (if any) to pay remuneration for the services so rendered can only derive from the principles of restitution”. He held on the facts of that case that there had been an implicit request for services and therefore that the charterers were liable to pay “a reasonable remuneration, i.e. remuneration at the market rate prevailing at the time when, after [the date of withdrawal] the owners complied with the charterers’ request …”. In these circumstances, he did not need to “explore … the nature of the liability which might arise, in the absence of any request, under principles of the law of restitution”.
Upon appeal from the decision of Robert Goff J, the Court of Appeal concluded that the vessel had not been withdrawn from service and so the question about remuneration for her services did not arise. However, Lord Denning MR expressed disagreement with Robert Goff J about remuneration after withdrawal (although the other members of the Court of Appeal, Dunn LJ and Fox LJ, expressed no view on this question). For reasons that I sought to explain in ENE Kos v Petroleo Basiliero SA (The “Kos”), [2009] EWHC 1843 (Comm) at paras 43 ff, I agree with the view expressed, despite the opinion of Lord Denning MR, by the editors of Time Charters (2008) 6th Ed at paras 16.111-112 that owners are entitled to remuneration in these circumstances: “Where, after [a valid] withdrawal, the owners perform further services at the request of the charterers, they may become entitled to remuneration for those services under a new contract. Given the development of the law since The Tropwood (No 2), it is suggested that Robert Goff, J’s view would now prevail if the matter came before the courts again”. This view finds support in the judgment of Carruthers J in Mutual Export Corp and ors v Australian Express Ltd and ors (The “Lakatoi Express”), (1990) 19 NSWLR 285, 304.
I therefore consider that the contractual claim for reasonable remuneration for use of the vessel after she was withdrawn depends, therefore, upon whether Fayette expressly or impliedly requested these services. I have not found this an easy question, but I conclude that they did impliedly do so. After the withdrawal of the vessel, while CSAV had obligations under the bills of lading contracts, they were under no contractual or other obligation to Fayette to continue the voyage and to deliver the cargo, but Fayette would prima facie have been in breach of their obligations under the voyage charterparty if cargo was not delivered to Indonesia and Malaysia. However, Fayette served notices and gave instructions to the vessel (or purported to do so) by way of the notice of redelivery and on 5 March 2011. The implication is that they were calling upon the vessel to provide her services to complete the voyage.
Mr Happé submitted that Fayette’s communications should not be so interpreted. He pointed out that on 19 February 2011 CTM had called for Fayette’s “full co-operation” and on 3 March 2011 DBHH had asked for updated advice about the vessels “prospects”. He argued that Fayette’s communications are properly to be seen as them affording such co-operation as had been sought, rather than requesting services of the vessel. I cannot accept that submission: the communications with the master on 5 March 2011 were sent by way of objection to instructions given by the owners rather than in order to co-operate with them. I conclude that CSAV are entitled to be paid by Fayette reasonable hire or remuneration at the agreed rate of $23,000 per day for the period from 26 February 2011 to 10 March 2011.
CSAV have alternative claims against Fayette and Metinvest that they are entitled to be paid on a quantum meruit basis on the basis of unjust enrichment (or in restitution) for use of the vessel after she was withdrawn from KLC’s service in carrying the cargo to its destinations and delivering it there. They observe that otherwise the owners would have provided the vessel for the whole voyage and Fayette and Metinvest would benefit from that but not pay anything for much of the voyage (KLC having no claim for hire after the vessel was withdrawn from their service on 26 February 2011). If I am correct about the bills of lading claims and the contractual post-withdrawal claim for reasonable remuneration, these alternative claims do not arise. I shall consider them only briefly.
Initially Mr Bignall submitted that CSAV are so entitled because the defendants were unjustly enriched at their expense and that in these circumstances the defendants are liable unless they can rely upon a recognised defence. However, he rightly abandoned this argument: English law has rejected so general a rule, and a claim of this kind must be brought within a recognised category for which a remedy for unjust enrichment is available: Deutsche Morgan Grenfell Group plc v IRC, [2006] UKHL 49 at para 21 per Lord Hoffmann. More specifically, English law does not recognise a general right of recovery for benefits conferred on others or expenses incurred in conferring them: Petroleo Brasiliero SA vENE Kos 1 Ltd (The “Kos”), [2012] UKSC 17 at para 19 per Lord Sumption. Accepting that this is the proper approach, Mr Bignall submitted that the claim is within a recognised category because:
i) Fayette freely accepted the services and are liable to pay a quantum meruit for them.
ii) Metinvest are liable, as bailors of the goods, to pay CSAV on a quantum meruit basis because CSAV were obliged to care for the cargo and did so.
Mr Bignall’s submission in support of the claim against Fayette is that, in the absence of a relevant contract or relationship of trust, if no liability in tort arises and subject to various recognised defences, a person is entitled to a quantum meruit by way of unjust enrichment when another chooses to accept his services, so long as he knew or as a reasonable man should have known that their provider expected to be paid for the services. He cited chapter 17 of Goff & Jones, The Law of Unjust Enrichment (2011, 8th Ed) in support of his contention that the law provides relief on the basis of unjust enrichment in cases of “free acceptance”, an expression derived from the 1st edition of Goff & Jones, The Law of Restitution (1966), p.30. A principle of this kind has had more academic than judicial recognition (and has been questioned academically: for example, by A Burrows in “Free Acceptance and the Law of Restitution”, (1988) 104 LQR 576), but it was, I think, acknowledged by Arden LJ in Benedetti v Sawiris, [2010] EWCA 1427 (Civ) at para 2 (although Etherton LJ, at para 143, considered that the basis upon which Mr Benedetti was entitled to quantum meruit relief for his services was immaterial): “A quantum meruit may be awarded where services have been rendered but there is no contract establishing the price to be paid for those services”.
For my part, I consider that English law probably does provide quantum meruit relief for “freely accepted” services, but I am not persuaded that Fayette would have been liable on this basis even if I had rejected the other claims. I agree with Mr Bignall that it was a benefit to Fayette that the cargo was carried to the destinations stipulated in the voyagecharterparty: they thereby fulfilled their contractual obligations to Metinvest, and I cannot accept Mr Happé’s submission that, because under clause 9 of the Contract of Affreightment Fayette earned the freight on loading, it made no difference to them whether or not the contract in the voyage charterparty was carried out. However, a claim lies only where the services are “freely” accepted, where a defendant has not taken a reasonable opportunity open to him to reject the proffered services; and it does not lie when a defendant has had no option about whether to accept the benefit of them. In this case, CSAV were obliged under the bills of lading contracts to carry the cargo and deliver it to its destinations. Fayette (who had these obligations of CSAV well in mind, as is apparent from their communications of 23 February 2011 and, as I interpret them, those of 5 March 2011) were in no position to prevent CSAV from carrying out their obligations under the bills of lading contracts: it was not suggested that they should have sought to prevail upon Metinvest or other persons with interest in the delivery of the cargo to release CSAV from their obligations, and no evidence that, if they had sought to have CSAV released, they would have succeeded.
In support of the claim against Metinvest for remuneration on a quantum meruit basis, Mr Bignall made this submission: that, where goods are loaded on a vessel and the contractual arrangements for the bailment of the goods terminate while the goods are still on the vessel, the owner is under a duty as bailee to take reasonable care of the cargo and, as a correlative right, is entitled to remuneration for carrying out his duty from the bailor of the goods. He relied upon the decisions of the House of Lords in China Pacific SA vFood Corpn of India (The “Winson”), [1982] AC 939 and of the Supreme Court in The “Kos”, (cit sup). It seems to me that the principle established by those cases would apply in the present circumstances if the relationship between the bailors and the bailees were not governed by the bills of lading contracts. I accept that CSAV carried out their obligations to care for the cargo by carrying it to the destinations stipulated in the bills of lading contracts. Mr Happé did not submit that they could have met their obligations as bailees more economically by discharging the cargo at an interim port. In any case, it appears from the decision of the Privy Council in Gaudet v Brown (“Cargo ex Argos”), (1873) LR 5 PC 134 that the bailee is entitled to recover in respect of carriage of bailed cargo if that is “the best and cheapest way of making [it] available to the [bailor]” (at p.165 per Sir Montague Smith), and there is no suggestion that CSAV should have dealt with the cargo otherwise than as they did; and I would conclude that CSAV took the only course reasonably and practically open to them when they carried the cargo to Malaysia and Indonesia and delivered it there. Nor did Mr Happé suggest that there is any relevant distinction in this case between the remuneration that CSAV would have been entitled to recover and their expenses (which would include what Lord Sumption called in The “Kos” their “opportunity cost” of caring for the cargo, as well as out of pocket expenses: loc cit at para 29). But for my decisions on the bills of lading claims and the contractual post-withdrawal claim, I would have allowed the claim against Metinvest in unjust enrichment.
Conclusion
I therefore allow the bills of lading claims, the lien claim against Metinvest and the contractual post-withdrawal claim against Fayette for quantum meruit remuneration. I hope that the parties can agree upon the terms of relief to which the claimants are entitled but I shall, if necessary, hear further submissions about that.
Kish and Another v. Taylor, Sons, & Co.
[1912] UKHL 1046 49 SLR 1046, [
Lord Atkinson—In this case the appellants, the owners of the ship “Wearside,” claim a lien upon the goods of the defendants, the endorsees of a bill of lading, dated the 23rd January 1908, which purported to incorporate all the conditions, provisos, and exceptions contained in a certain charter-party, dated the 18th December 1907, made between these owners and the Mississippi Transportation Company of Gulfort, Mississippi.
By this charter-party the “Wearside” was bound to proceed to Mobile, and there or at Pensacola load a full and complete cargo of timber of the kind described, and being so loaded to proceed to a port on the Continent between Bordeaux and Hamburg (Rouen excluded), and at charterers’ option to discharge at two ports on the Continent and one port in the United Kingdom. The port of Liverpool was ultimately selected as the port of discharge in the United Kingdom. The charter-party contained the following clauses, amongst others—(1) a clause authorising the “Wearside” to deviate for the purpose of saving life and property; (2) a clause to the effect that the master or owners of the ship were to have an absolute lien on the cargo for all freight, dead freight, demurrage, and average; and (3) a clause that any difference between charter-party and bills of lading freight was to be settled at the port of loading before the vessel sailed; if in favour of vessel, to be paid in cash at current rates of exchange less insurance; if in the charterer’s favour, by captain’s bills payable ten days after arrival at port of discharge.
The vessel duly arrived at Mobile, and subsequently went to Pensacola to load. The charterers were admittedly under this charter-party absolutely bound to furnish a full cargo. They failed to do this. They only shipped 801 1 4 standards, all of which were properly stowed in the hold of the vessel. Fully loaded she would have carried 1390 1 2 standards. The cargo shipped was therefore short by 589 1 4 standards. Now it is not suggested that at the time when the charterers thus broke their contract the vessel was not perfectly seaworthy, was not fit in every way to receive her full cargo, or that her owners had up to that time failed in any respect to carry out, or were not ready and willing to carry out, their contract fully. There was therefore nothing to justify or excuse this breach of contract by the charterers, and the right to recover damages for the breach had accordingly accrued to the owners. These damages are what is styled dead freight. In Carver on Carriage, par. 666, dead freight is defined to be the compensation payable to the shipowner when the charterer has failed to ship a full cargo. Freight is the recompense which the shipowner is to receive for carrying the cargo to its port of discharge. The two things are wholly dissimilar in their nature, though of course the freight which the shipowner would have earned if the charterers had fulfilled his contract will in most cases be a fair measure of the damages which he is entitled to recover, and it is in my view clear, from the decision of your Lordships’ House in M’Lean v. Fleming, L.R., 2 H.L. Sc. 128, that an agreed lien does not cover such damages though they be unliquidated.
Walton (J.) states in his judgment that it was not disputed before him that the words occurring in the bill of lading—“all other conditions as per charter”—import into that document the provision of the charter-party giving to the owners of the vessel an absolute lien on the cargo for dead freight amongst other things. Indeed in the face of the authorities this could not be disputed successfully. They are, I think, clear upon the point. So that before the vessel had loaded more than the 801 standards the right to recover this compensation had accrued to the owners, and they had become entitled to a lien on the cargo in respect of it. The master of the vessel, after the default of the charterers, and in their relief, obtained additional cargo from other sources. Unfortunately he overloaded his ship with deck cargo to such an extent as to make her unseaworthy. She proceeded to sea, encountered bad weather, and by reason of her overloaded condition her master was obliged, in order to save his vessel and the lives of his crew, to take refuge in the port of Halifax. Some of the deck cargo was carried overboard, other portions were jettisoned, other portions damaged, and the vessel herself was so much damaged that it was absolutely necessary to have some repairs done upon her and to have a portion of her cargo re-stowed. The owners have paid for these repairs, and have compensated the owners of the lost, jettisoned, and damaged cargo for the loss which they have sustained, and do not claim from anyone concerned any contribution on foot of the expenditure thus resulting from their improper act in overloading their ship. They do not seek in any way to take in this respect any advantage of their own wrong, in the proper sense of that expression.
The “Wearside” duly arrived at Liverpool. The respondents’ portion of the cargo was uninjured and the ship was ready to deliver it. The respondents, however, dispute the existence of the shipowners’ lien for dead freight to any amount, mainly on two distinct grounds. First, they contend that as every shipowner is held to warrant the seaworthiness of his ship, the breach of that warranty puts an end to the contract of affreightment contained in the bill of lading, which becomes, they say, void ab initio, and consequently that though the goods in specie have been duly carried to their destination undamaged, the endorsees of the bill of lading are only obliged to pay the shipowners for their services such sum as they may be entitled to as common carriers by sea instead of the remuneration stipulated for in the bill of lading.
Second, they contend that the deviation to the port of Halifax was unjustifiable in this respect, that however necessary it may have been in order to save the ship and cargo and the lives of the crew owing to the perilous condition to which the vessel was in fact reduced, yet as that condition was in part due to the act of the master in overloading her with deck cargo to such an extent as to make her unseaworthy, the deviation must be treated as a deviation made without any necessity whatever, a gratuitous alteration of the voyage rendering the contract of affreightment contained in the bill of lading void ab initio. Of the several points raised by the respondents in the Court of Appeal this latter was the only one decided. The Lords Justices held that the respondents’ contention was right, that the deviation constituted a new voyage different from that with which the bill of lading and charter-party were conversant, and that the former of these documents, if not both, were therefore void ab initio.
Mr Atkin, on behalf of the respondents, was driven to admit that if his contention on the first point was sound it would be competent for every indorsee of a bill of lading whose goods had in fact been carried safely and with due expedition to the appointed port of discharge to contend that, by reason of some of those comparatively trifling omissions on the part of the master which have been held to render a vessel unseaworthy—such as sailing without two anchors, sailing without an adequate supply of medicines and medical appliances for the crew—he was released from all the obligations imposed upon him by the bill of lading, the argument being that the provision of a seaworthy ship was a condition-precedent, and not having been performed the contract of affreightment was entirely displaced. No authorities were cited in support of this proposition. I think that it is in conflict with the principles of English law.
In Dakin v. Oxley, 15 C.B.N.S. 646, Willes (J.), deals exhaustively with the question whether, under the laws of different Continental and other foreign countries, the indorsee of a bill of lading is relieved from his contract where the cargo arrives at the port of lading in specie, though damaged through the negligent navigation of the ship by her master and crew, and as to the law of England on this point he speaks thus—“The test to the right to freight is the question whether the service in respect of which the freight was contracted to be paid has been substantially performed, and according to English law freight is earned by the carriage and arrival of the goods, though they be in a damaged condition when they arrive. Freight must be paid even where the damage is culpable, and the parties must be left to their cross-action.”
The case of “ The Europa,” [1908] P. 84, is, I think, an authority against the respondents’ contention. There the action was brought by the shipowner against the charterer in respect of goods damaged by one of the perils of the sea excepted by the charter-party, not by the unseaworthiness of the ship, which was admitted. It was held by Bucknill and Bargrave Deane (JJ.), on a line of reasoning which appears to me convincing, that the charter-party, notwithstanding this unseaworthiness, was not displaced; that, on the contrary, the clause excepting perils of the sea was alive and operative; and that the shipowner, despite his breach of warranty, was protected under it from liability for the injury done to the goods.
Neither in Steel v. State Line Steamship Company ( 3 A.C. 72), nor in Gilroy, Son, & Company v. Price & Company ( 1893 A.C. 56), was it suggested that the breach of warranty of seaworthiness put an end to the contract of affreightment, and relegated the shipowner to his rights as a common carrier by sea. On the contrary, the observations of Lord Blackburn, in the former case, seem to indicate that the indorsee of the bill of lading might be disentitled to recover, despite the fact of unseaworthiness, unless that unseaworthiness caused the damage. He is reported to have used these words—“So here I think that if this failure to make the ship fit for the voyage, if she really was unfit, did exist then, the loss produced immediately by that, though it was a peril of the seas which would have been excepted, is nevertheless a thing for which the shipowner is liable, unless by the terms of his contract he has provided against it” and further on he says—“I have no doubt what the result will be; it will be a question whether, taking the whole circumstances together, this ship was reasonably fit when she sailed to encounter the perils, and whether the damage that happened was a consequence of her being unfit, if she was unfit”—which appears to me to imply that if the damage was not a consequence of this unfitness, the shipowner’s liability must be determined by the provision of his contract of affreightment so far as it dealt with that liability.
In Baumvoll Manufactur von Scheibler v. Gilchrest & Company ( [1892] 1 Q.B. 253), Lord Esher, M.R., is reported to have used these words—“The first cause of action which they allege is for breach of the bills of lading, and secondly, they allege negligence in sending the ship to sea from New Orleans is an unseaworthy condition. It is not a sufficient breach of a bill of lading that a ship went to sea in an unseaworthy condition, but it must always be shown that the unseaworthiness was the cause of the loss.” The fact that a ship is not in a fit condition to receive her cargo, or is from any cause unseaworthy when about to start on her voyage, will justify the charterer or holder of the bill of lading in repudiating his contract and refusing to be bound by it, and of course the parties can by mutual consent rescind their contract of affreightment, but repudiation or recision are questions of fact. They have not been found by the Judge at the trial in this case. It lay upon the respondents to procure findings upon them, if they wished to escape on these grounds from the obligations of their contract.
Having regard, therefore, to the authorities which I have cited, and to the absence of all authority to support the respondents’ contention on their first point, it is, I think, unsound and unsustainable according to the law of this country.
On the second point it is not disputed that it is prima facie not only the right but the duty of the master of a ship to deviate from the course of his voyage and seek a harbour or place of safety, if that course be reasonably necessary in order to save his ship and the lives of his crew from the perils which beset them. Neither is it disputed by the appellants that they are answerable in damages to every person who sustains loss or injury by reason of the breach of their warranty of the seaworthiness of their ship, and they further admit that they cannot require the owners of the cargo or any portion of it to recoup them to any extent for any loss which they may have sustained or expense to which they may have been put as a result of this breach of warranty, or of any course which they may have had to take in consequence of it. The appellants further admit that voluntary or unwarranted deviationmay render the contract of affreightment void ab initio, as was decided by the Court of Appeal in Joseph Thorley, Limited v. Orchis Steamship Company ( [1907] 1 K.B. 660). What they contend is, in effect, this, that justifiable deviation does not avoid the contract; that to use the language of Lord Watson in a case presently to be referred to, “it is the presence of the peril and not its causes” which justify it, and that it is, therefore, immaterial whether the unseaworthiness of the ship or her negligent navigation contributed directly to the peril or not. Judged by that test it is not disputed that the deviation in the present case was justifiable, and if so, that the contract of affreightment was not void ab initio, so that the question for decision resolves itself into this—Is it the presence of the peril and not its cause which determines the character of the deviation, or must the master of every ship be left in this dilemma that whenever, by his own culpable act, or a breach of contract by his owner, he finds his ship in a perilous position, he must continue on his voyage at all hazards, or only seek safety under the penalty of forfeiting the contract of affreightment? Nothing could, it would appear to me, tend more to increase the dangers to which life and property are exposed at sea than to hold that the law of England obliged the master of a merchant ship to choose between such alternatives.
The Court of Appeal appears to have considered that they found in Lord Watson’s judgment in Strang, Steel, & Company v. Scott & Company, 14 App Cas 601, a principle which was applicable to the present case. They did not refer to any other authority in support of their decision on this point. With the utmost respect I am quite unable to concur with them. In that case, through the negligence of the master the ship was driven ashore and part of her cargo was jettisoned.
The question with which Lord Watson was dealing in the passage cited from his judgment by Flether Moulton, L.J., was what he styled the first question raised in the case—namely, “Whether innocent owners of cargo, sacrificed for the common good, are disabled from recovering a general contribution by the circumstance that the necessity for the sacrifice was brought about by the ship-master’s fault?” He says—“Each owner of jettisoned cargo becomes a creditor of the ship and cargo saved, and has a direct claim against each of the owners of the ship and cargo for a pro ratâ contribution towards his indemnity, which he can enforce by direct action.” Further on he says—“The Rhodian law, which in that respect is the law of England, bases the right to contribution, not upon the causes of the danger to the ship and cargo, but upon its actual presence.” And before the passage last cited, he says—“The principle upon which contribution becomes due does not appear to differ from that upon which the claim for salvage services are founded. But in any aspect of it the rule has its foundation in the plainest equity. In jettison the rights of those entitled to contribution, and the corresponding obligations of the contributors, have their origin in the fact of a common danger which threatens to destroy the property of them all, and these rights and obligations are mutually perfected wherever the goods of some of those shippers have been advisedly sacrificed and the property of the others has been thereby preserved. There are, however, two well-established exceptions to the rule of contribution for general average which it is necessary to notice.”
He then proceeds to deal with the first exception in the passage cited. Lower down he deals with the second exception, deck cargo. He says—“But the owner of deck goods jettisoned, though not entitled to general contribution, may nevertheless have a good claim against the master and owners who received his goods for carriage upon deck.” And after stating that such exceptions as are recognised in Schloss v. Heriot, 14 C.B.N.S. 59, are in truth limitations of the rule introduced from equitable considerations in the case of actual wrongdoers, he states the conclusion of the Judicial Committee thus—“The owners of the goods thrown overboard, having been innocent of exposing ‘The Abington’ and her cargo to the sea peril which necessitated jettison, their equitable claim to be indemnified for loss of their goods is just as strong as if the peril had been wholly due to the action of the winds and waves.”
To permit a wrongdoer to recover contribution in such a case would indeed be to permit him to take advantage of his own wrong, for his wrongdoing necessitated the sacrifice out of which his claim for contribution would spring. The present case is wholly different. Here the claim of the appellants arose before they were in default at all. It does not spring from their default; it is entirely independent of their default. It springs, on the contrary, from the respondents’ fault, and the contract of the respondents provides a specific and particular method, a lien, by which it may be enforced. It is in truth the respondents, not the appellants, who seek to take advantage of the appellants’ wrong in order to deprive the appellants of a right which the respondents’ wrong gave them. This distinction between the case of Strang Steel & Company v. Scott & Company and the present case is to my mind crucial, and prevents the decision in that case from being any help whatever to the proper decision of the present.
On the whole, therefore, I am of opinion that a master whose ship is, from whatever cause, in a perilous position does right in making such a deviation from his voyage as is necessary to save his ship and the lives of his crew, and that while the right to recover damages for all breaches of contract, and all wrongful acts committed either by himself or by the owners of his ship, is preserved to those who are thereby wronged or injured, the contract of affreightment is not put an end to by such a deviation nor are the rights of the owners under it lost.
Speaking for myself, I may say that I think that it would not be consistent with any principle of justice that these rights should be lost. The fact that by a policy of insurance the insurer merely indemnifies the insured against loss from certain risks, and it is therefore his right not to have these risks increased, differentiates, I think, altogether the case of an insurer from the case of an indorsee of a bill of lading whose goods have been brought safely and undamaged to the port of discharge. The respondents’ contention on the second point is to my mind, therefore, as unsustainable as that on the first.
The respondents’ contention on their third point amounts, as I understand it, to this. The freight mentioned in the bill of lading is, they say, 26s. per load of 50 cubic feet. Gardner v. Trechmann, L.R., 15 Q.B.D. 154, decides that where the freight mentioned in the charter-party is more than that mentioned in the bill of lading, the indorsee of the latter, claiming as such, is, in the absence of special agreement to the contrary, only bound to pay the lesser freight. Here there is a special agreement in the last clause of the charter-party providing that any difference between the two should be settled at the port of lading before the vessel sails.
Therefore, as dead freight is still freight, it should either not be paid at all as it is not included in the freight mentioned in the bill of lading, or if payable at all it should, under the last clause of the charter-party, have been settled and paid at the period of loading before the vessel sailed at all. The answer to this ingenious but very fallacious argument is, that dead freight is not freight at all properly so called, but is in reality damages for breach of contract, for convenience nick-named dead freight, and that neither the last clause in the charter-party nor the case of Gardner v. Trechmann has any application whatever to it.
On the whole, therefore, I am of opinion that on the three points argued before your Lordships the respondents fail, and that the appeal ought to be allowed, with costs, and further that the case should be remitted to the Court of Appeal to deal with the award of damages by Walton (J.) against which both parties have appealed.
Judgment appealed from reversed. Case remitted to the Court of Appeal. Respondents to pay to the appellants their costs of this appeal. Costs in the Court of Appeal to depend on the final issue.
JI MacWilliam Company Inc v. Mediterranean Shipping Company SA
[2005] UKHL 11: [2005] 2 AC 423, [2005] 2 All ER 86, [2005] 2 WLR 554, [2005] UKHL 11
Lord Steyn
…..VI. What is the answer?
Rix LJ has comprehensively set out the competing arguments placed before the Court of Appeal which were repeated before the House: [2004] QB 715F-716G. It would serve no useful purpose for me to cover the same ground in this opinion. Instead I can move directly to considering the answer to the question before the House.
One must start with the function of the bill of lading in international trade. Through the centuries that role has changed. What started as a bailment receipt of goods developed into a receipt containing the contract of carriage, and in the course of time acquired a third characteristic, that of a negotiable document of title. It has long been understood that negotiability in this context is used in a special sense: it does not involve the idea that the endorsee gets a better title than his assignors. But it means that the document is transferable by endorsement not only to the consignee but successively to others.
In modern commercial usage the bill of lading is one of the pillars of international trade, providing the credit necessary for the financing of mercantile trade. The principal characteristics of the modern bill of lading are threefold. It operates as:
(a) a receipt by the carrier acknowledging the shipment of the goods on a particular vessel for carriage to a particular destination;
(b) a memorandum of the terms of the contract of carriage, which will usually have been concluded before the signing of the document;
(c) a document of title to the goods which enables the consignee to take delivery of the goods at their destination or to dispose of them by the endorsement and delivery of the bill of lading.
The sequence of events in the life of a bill of lading has been usefully summarised in Bills of Lading, Report by the Secretariat of UNCTAD, a United Nations publication published in New York, 1991, as follows [para 21]:
“(a) The shipper’s description of the goods, with his own name and that of the consignee inserted on the carrier’s form; particulars of the total gross weight and the measurement, for freight calculation purposes, and where necessary, the value of the goods, are also inserted by the shipper;
(b) The lodging of the bill of lading at the office of the shipowner or his agent or broker;
(c) The completion and checking of the contents of the bill of lading by the shipowner or broker against tallying details taken at the time of loading the cargo;
(d) The freight calculation;
(e) The signature of the bill of lading by or on behalf of the carrier or the ship’s master and by such other parties as may by law be required to do so in different countries;
(f) The release by the shipowner or his agent of the signed bill of lading to the shipper against payment of freight if the freight is prepaid; and, where appropriate, a mate’s receipt or equivalent document;
(g) The dispatch of the bill of lading by the shipper to the buyer or consignee or its lodgement with a bank when a letter of credit is involved;
(h) The surrender of the bill of lading by the consignee to the shipowner’s agent at the port of discharge in order that he may obtain delivery of his goods.”
Except in one respect, this is probably an adequate explanation of the usual course of dealings regarding bills of lading. The additional factor to be noted is that in practice it is left to the shipper to choose the words to be inserted in the ‘consignee’ box. So far as the carrier is concerned the inclusion or exclusion of the words “to order” is entirely adventitious: the shipper makes the decision. For the issues in the present case this factor is relevant inasmuch as, on the carrier’s argument, the applicability of the convention will depend on the shipper’s decision, usually made after the contract of carriage was made: Pyrene v Scindia [1954] 2 QB 402, at 419-420.
Before the era of international maritime conventions the general understanding of the role of a contract of carriage was explained in Hansson v Hamel & Horley Ltd 1921 Lloyd’s List LR 432 at 433, as follows:
” … What is meant by the expression ‘Contract of Affreightment’? In my opinion, to satisfy the requirements with reference to contract of affreightment, the seller must bring into existence a contract embodied in a form capable of being transferred to the buyer and which when transferred will give the buyer two rights: (a) a right to receive the goods, and (b) a right against the shipowner, who carries the goods, should the goods be damaged or not delivered’. …”
An appeal in Hansson was dismissed by the House of Lords: [1922] 2 AC 36. This quality of transferability came about in the laws of maritime nations in different ways – sometimes by statute law and sometimes by the evolution of the general law. In the United Kingdom the pivotal development was the enactment of the Bills of Lading Act 1855.
The 1855 Act provided:
“Whereas, by the custom of merchants, a bill of lading of goods being transferable by endorsement, the property in goods may thereby pass to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner; and it is expedient that such rights should pass with the property: And whereas it frequently happens that the goods in respect of which bills of lading purport to be signed have not been laden on board, and it is proper that such bills of lading in the hands of a bona fide holder for value should not be questioned by the master or other person signing the same on the ground of the goods not having been laden as aforesaid:
1. Consignees, and endorsees of bills of lading empowered to sue. – Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading, to whom the property in the goods therein mentioned shall pass upon or by reason of such consignment or endorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.”
[My emphasis]
The importance of this statute for the general development of our maritime law is apparent. Specifically, it also casts light on the way in which the specific question before the House should be approached.
Contrary to arguments of the carrier, it is in my view impossible to give a restrictive construction to section 1 so as to exclude straight bills of lading. Section 1 provides that “every consignee named in a bill of lading” is empowered to sue on it. It is true that the preamble only speaks of the custom of merchants by which a bill of lading is transferable by endorsement. But the substantive provisions of section 1 are wider and quite general. They cannot sensibly be read as applying only to a consignee named in an order bill. A named consignee is within the mischief which the 1855 Act sought to correct: before the Act was passed property in the goods passed to the named consignee but he had no right to sue in contract in respect of cargo damage suffered during the voyage unless it could be proved that the shipper had affected the original contract as agent for the consignee. Moreover, if the carrier’s restrictive interpretation is accepted, there would have been a major gap in the 1855 Act because a named consignee in a straight bill of lading on that basis could neither sue nor be sued on a contract of carriage evidenced by the bill of lading. Such an implausible interpretation must be rejected.
It is now necessary to turn to the relevant provisions of the Hague Rules which in material respects mirror the later Hague-Visby Rules. The relevant provisions are:
“Article I.
(b) “Contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charterparty from the moment at which such bill of lading or any similar document of title regulates the relations between a carrier and a holder of the same.
Article V.
The provisions of these Rules shall not be applicable to charterparties, but if bills of lading are issued in the case of a ship under a charterparty they shall comply with the terms of these Rules …
Article VI.
Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of the carrier, and a shipper shall in regard to any particular goods be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier in respect of such goods … provided that in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be a non-negotiable document and shall be marked as such.
Any agreement so entered into shall have full legal effect.
Provided that this Article shall not apply to ordinary commercial shipments made in the ordinary course of trade, but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed, are such as reasonably to justify a special agreement.”
Rix LJ explained with reference to articles I(b) and V that once “the bill of lading is transferred into the hands of a third party, then it springs into life as a separate contract of carriage, which is why it must comply at the outset with the requirements of the Rules” [2004] QB, at 723F, para 51. Article VI caters for an exceptional situation and gives no aid to the argument that a straight bill of lading dealing with ordinary commercial shipments would fall outside the international minimum standards envisaged by the Rules.
The question is whether a straight bill of lading triggers the application of the Rules, that is the provision that the Rules are only engaged in respect of contracts of carriage “covered by a bill of lading or any similar document of title”. Before the adoption of the Hague Rules the practice of issuing straight bills of lading was known, and such documents were described and treated as bills of lading. For the United Kingdom this proposition is made good by the decision of the Privy Council in C P Henderson & Co v Comptoir d’Escompte de Paris (1873) LR 5 PC 253, 259-260. In the United States the straight bill of lading was sufficiently recognised to be regulated by the Pomerene Bills of Lading Act 1916; see the judgment of Rix LJ, paras 47 and 48, at 721F-722A. In continental legal systems the straight bill of lading was well known and treated as a bill of lading: Tiberg, Legal Qualities of Transport Documents (1998) 23 Mar. Law 1 and Treitel, The Legal Status of Straight Bills of Lading, (2003) 119 LQR 608. It is true, of course, that the vast preponderance of transactions took place on the basis of order bills of lading. But it is a matter of contextual significance that straight bills of lading were in use before the Hague Rules were adopted. The travaux préparatoires of the Hague Rules are plainly inconclusive and cannot be used to determine the intentions of the framers on the precise question before the House. But it is a fair inference that the framers of the Hague Rules could not have been unaware of the relatively widespread mercantile use of straight bills of lading at that time. If it had been intended to exclude these bills of lading, special provision to that effect would surely have been made. Instead the gateway to the application of the Hague Rules was expressed in the wide and general terms of the existence of a bill of lading or any similar document of title.
The very words in question – “bills of lading or any similar document of title” – are words of expansion as opposed to restriction. They postulate a wide rather than narrow meaning. The attempt by the carriers to treat those words as importing a restrictive meaning of a conforming document under article I(b) involves a distortion of the plain language. It also reveals a preoccupation with notions of domestic law regarding documents of title which ought not to govern the interpretation of an international maritime convention. Instead the Rules must be construed by reference to “broad principles of general acceptation” appropriate to the international mercantile subject matter: see Stag Line v Foscolo Mango & Co [1932] AC 328, at 350. This view is reinforced if one considers the French text of the 1924 Hague Rules, which was at the time the authoritative version of the Rules: Pyrene v Scindia [1954] 2 QB 402, at 421, per Devlin J. The French text refers in article I(b) to a “contrat constaté par un connaissement ou par tout document similaire formant titre pour le transport des merchandises par mer …”. It contains no reference to the English concept of a ‘document of title’ at all. Instead it focuses on the right to possession of the goods vesting in the holder of the document. This makes it singularly inappropriate to invoke the meaning of ‘document of title’ at common law. But even the English text is more consistent with an interpretation of article I(b) which treats straight bills of lading as included rather than excluded.
The attestation clause expressly provides that “One of the bills of lading must be surrendered duly endorsed in exchange for the goods or delivery order.” The carrier argued that the words “duly endorsed” signify that this provision is inapplicable to a straight bill of lading. I would reject this argument. The words “duly endorsed” merely indicate that the bill of lading must be endorsed if appropriate or as may be necessary to perform the right of the presenting party to claim delivery. In any event, the issue of a set of three bills of lading, with the provision “one of which being accomplished, the others to stand void” necessarily implies that delivery will only be made against presentation of the bill of lading. In my view the decision of the Court of Appeal of Singapore in Voss v APL Co Pte Ltd [2002] 2 Lloyds LR 707 at 722 that presentation of a straight bill of lading is a requirement for the delivery of the cargo is right. A connected point is that the logic of the carrier’s position is that some standard terms on the reverse side of the bill of lading must be deemed to be inapplicable. That too is not how traders, bankers and insurers would understand a straight bill of lading.
The carrier tried to equate the function of a straight bill of lading with that of a sea waybill. In Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed, 2000, edited by Leo D’Arcy and others, a sea waybill is described as follows (paras 15-033, at p 281):
“A sea waybill is a non-negotiable transport document and its great advantage is that its presentation by the consignee is not required in order for him, on production of satisfactory identification, to take delivery of the goods, thus avoiding delay both for him and the carrier where the goods arrive before the waybill. It is not a document of title but contains, or is evidence of, the contract of carriage as between the shipper and carrier in that it incorporates the standard terms of the carrier on its face. However, unlike a bill of lading, these terms are not detailed on the reverse of the waybill which is blank. A waybill is usually issued in the “received for shipment” form but may, like a bill of lading, be notated once the goods have been loaded.”
The suggested comparison is plainly unrealistic. In the hands of the named consignee the straight bill of lading is his document of title. On the other hand, a sea waybill is never a document of title. No trader, insurer or banker would assimilate the two. The differences between the documents include the fact that a straight bill of lading contains the standard terms of the carrier on the reverse side of the document but a sea waybill is blank and straight bills of lading are invariably issued in sets of three and waybills not. Except for the fact that a straight bill of lading is only transferable to a named consignee and not generally, a straight bill of lading shares all the principal characteristics of a bill of lading as already described.
Moreover, no policy reason has been advanced by the carrier why the draftsmen of the Hague Rules would have wanted to distinguish between a named consignee who receives an order bill of lading and a named consignee who receives a straight bill of lading. There is simply no sensible commercial reason why the draftsmen would have wished to deny the CIF buyer named in a straight bill of lading the minimum standard of protection afforded to the CIF buyer named in an order bill of lading. The importance of this consideration is heightened by the fact that straight bills of lading fulfil a useful role in international trade provided that they are governed by the Hague-Visby Rules, since they are sometimes preferred to order bills of lading on the basis that there is a lesser risk of falsification of documentation.
On a broader footing it is apparent that the interpretation advanced by the carrier depends on fine and technical distinctions and arguments. Traders, bankers and insurers would be inclined to take a more commercial view of straight bills of lading. This view is supported by Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed, 2000, at 276.
The academic response to the decision of the Court of Appeal is also important. Professor Sir Guenter Treitel QC, The Legal Status of Straight Bills of Lading, (2003) 119 LQR 608, at 611) observed about the Court of Appeal decision that “there seems to be no good policy reason for distinguishing between straight and order bills, so that one can express one’s respectful agreement with the actual decision that the Hague-Visby Rules apply to both kinds of bill alike”. Professor Charles Debattista, Straight Bills Come In From the Cold – Or Do They?, Lloyd’s List 23 April 2003, at 6, also welcomed the decision.
It is common ground that the Carriage of Goods by Sea Act 1992 treats straight bills of lading as sea waybills. That assumption comes from the view of the Law Commission to that effect: The Law Commission Report No 196, Rights of Suit in Respect of Carriage of Goods by Sea, paras 2.50 and 4.10-4.12. The 1992 Act was enacted three years after the contract of carriage in this case came into existence. Moreover, and more fundamentally, section 5(5) of the 1992 Act specifically provides that it will not affect the Hague-Visby Rules. The terms of the 1992 Act cannot alter the proper construction of article I(b) of the Rules.
VII Conclusion
I found the analysis of Rix LJ in his comprehensive judgment entirely convincing. I would affirm it.
VIII Disposal
For these reasons, as well as the reasons given by my noble and learned friends, Lord Bingham of Cornhill and Lord Rodger of Earlsferry, I would dismiss the appeal.
East West Corporation v DKBS 1912 & Anor
[2002] EWHC 83 (Comm) [2002] 2 LLR 182, [2002] 1 All ER (Comm) 676, [2002] 2 Lloyd’s Rep 182, [2002] EWHC 83 (Comm)
Thomas J
Were the claimants the undisclosed principals of the banks named as consignees and therefore had title to sue in that capacity?
The first alternative case of the claimants was that, if the rights of suit were transferred to the Chilean banks as consignees, they were transferred to those banks in their capacity as agents for the claimants who were their undisclosed principals. They submitted that at all times the Chilean banks were doing no more than acting as agents for the claimants; had the Chilean banks been asked whether rights should vest in the banks or in the claimants, they would have said that they should vest in the claimants. Thus the necessary intention that the banks should act as agents could easily be inferred. They relied on this argument only in relation to the banks named as consignees and where transferring possession to those banks had the effect of extinguishing the rights of the claimants as shippers under the original contract. They did not seek to contend that the banks to which the bills were subsequently transferred at the claimants’ direction were such agents for the purposes of this argument.
The claimants contended that in so far as the effect of the 1992 Act was to create rights in contract between the carrier and the holder of the bill, there was no reason why the undisclosed principal could not sue under such a contract just as in any other contract. Similarly, there was no reason why in so far as the rights of suit were transferred, they could not be transferred to the banks as agents for the claimants as undisclosed principals.
They contended that the same policy considerations that enabled the principal of a consignee or a consignor to sue under an air waybill under the provisions of the Warsaw and Guadalajara Conventions should apply; they relied particularly on the judgment of Mance LJ in Western Digital v BA [2000] 2 Lloyd’s Rep 142 at paragraphs 43, 44 and 81.
It is suggested in Carver on Bills of Lading at paragraph 5-017, that where a bearer bill of lading is delivered to an agent, then it may be the case that the principal can be the holder for the purposes of the Act; it seems to me that this must be so, for in such a case the real question which arises is who is in possession as the actual holder. For example, if a bearer bill (or a bill endorsed in blank) is received by an employee of a company, the answer to the question is simple. The employee is not in possession; he can be described as having custody. His employer is in possession and is the holder. It does not seem to me that there can be any material distinction between such a person and any other agent. The agent holds custody of the bill for his principal and it is the principal who has possession and is the holder for the purposes of the 1992 Act; P&O and Maersk did not seek to contend to the contrary.
Where, however, under s 5(2)(a) of the 1992 Act, the person who becomes the holder is the named consignee, is that right personal to him as the person upon whom the 1992 Act confers the right? It is clear that there is scope for the operation of the doctrine of undisclosed principals in relation to rights of suit under bills of lading at common law: see for example the speech of Lord Blackburn in Sewell v Burdick (1884) 10 App Cas 74 at 90-1. It is also the case that the policy considerations referred to in the cases on air waybills may also be applicable in certain circumstances. For example in Gatewhite v Iberia Airlines [1989] 1 Lloyd’s Rep 160, Gatehouse J referred to the curious position that could arise if the right of suit depended on the willingness of the consignee to sue, as in such cases he might have little incentive being a customs agent or forwarding agent or bank; the same point was made by the Hong Kong Court of Appeal in Regaalite International Limited v Air Cargo Consolidation Service (UK) Ltd. [1966] 3 HKLR 453 and by Pritchard J in Tasman Pulp & Paper Co v Brambles [1981] 2 NZLR 225.
However the scheme of the Conventions governing carriage by air is very different; serious practical problems would, as the judgment of Mance LJ in Western Digital demonstrates, arise if the rights of suit in carriage by air were confined to the actual consignee or the consignor and their principals were excluded. The Conventions contain no definition of consignor or consignee; often in air transport, the consignee named in the air way bill is purely nominal. However both the scheme of the 1992 Act and the practice as to the naming of the shipper and the consignee are very different. The 1992 Act provides a detailed scheme for the transfer of the bill of lading and clear definitions as to the parties involved. There can be no difficulty in identifying the holder in the case of a consignee who becomes the lawful holder under s.5(2)(a); he is the person who by virtue of being identified in the bill is the consignee. The legal regime relating to airway bills is very different. I can see no reason for overriding what are in my view clear statutory definitions.
(iii) Were the rights of suit transferred back to the claimants?
Although the bills of lading were delivered back to the claimants, they were never endorsed by the banks to them. Was endorsement necessary? The issue turned substantially upon the meaning of the definitions of holder in s 5(2)(b) and (c) of the 1992 Act.
The simple contention advanced by Maersk and P&O was that by reason of s. 5(2)(b) of the 1992 Act, the rights of suit could only be transferred back by endorsement. This sets out the second definition of a holder as:
“ a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill, or in the case of a bearer bill, of any other transfer of the bill ”
There had been no endorsement back; therefore, as the claimants accepted, they could not establish title to sue on this basis. Maersk and P&O stressed that the simple step of endorsement back could have been taken and there was no need to attempt to complicate the simple scheme of the 1992 Act.
The claimants contended that endorsement was unnecessary because by the time of the return of the bills of lading to the claimants, the goods had been delivered and the bills of lading therefore no longer gave a right to possess as against the carrier. If the goods had not been delivered, then the bills would have been endorsed back to the claimants to enable them to take delivery of them. The claimants were therefore holders of the bills under s. 5(2)(c) of the 1992 Act and rights of suit vested in them; s.5(2)(c) sets out the third definition of a holder as:
“a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates. ”
They contended that once the cargo had been discharged, the bill of lading no longer gave a right to possession, only to a claim for damages; they relied on a series of decisions to which I refer at paragraph 35 and following. As holders they were entitled to bring a claim under s.2(2):
“Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill-
(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when the right to possession ceased to attach to the bill
… ”
The first question which arises is whether there was a right to possess as against the carrier after the goods had been wrongly delivered to Gold Crown. There are a number of cases prior to the 1992 Act where the courts considered the circumstances in which a bill of lading is discharged or spent. In Barclays Bank v Commissioners of Customs and Excise [1963] 1 Lloyd’s Rep 81, Diplock LJ summarised the general rule at p 89:
“The contract for the carriage of goods by sea is a combined contract of bailment and transportation … Such a contract is not discharged by performance until the shipowner has actually surrendered possession (that is divested himself of all powers to control any physical dealing in the goods) to the person entitled under the terms of the contract to obtain possession of them”
The specific issue, however, is whether the contract of carriage is discharged if the goods are delivered to a person other than the person entitled under the bill of lading. In Glynn Mills v The East & West India Dock Co (1882) 7 App Cas 600, Willes J said in the Court of Common pleas:
“I think the bill of lading remains in force at least so long as complete delivery of possession of the goods has not been made to some person having a right to claim under it. I believe that will be found not only to be the law but also to be in accordance with the convenience and practice of carriers and merchants.”
In the House of Lords, Lord Hatherly LC agreeing with this went on to state:
“When they have arrived at the dock, until they are delivered to some person who has the right to hold them, the bill of lading remains the only symbol that can be dealt with by way of assignment, or mortgage or otherwise…Until that time bills of lading are effective representations of the ownership of the goods, and their force does not become extinguished until possession, or what is equivalent in law to possession, has been taken on the part of the person having the right to demand it.”
In London Joint Stock Bank v British Amsterdam Maritime Agency (1910) 16 Com Cas 102, Channell J observed that the question as to whether the bill of Lading was discharged depended upon whether the person who took delivery was entitled to delivery.
Although Diplock LJ left the question open in Barclays Bank v Customs and Excise, in The Delfini [1988] 2 Lloyd’s Rep 599, the correctness of the observations of Channell J was accepted by the parties. In that case, it was contended that a bill of lading for 24,540 mt of oil remained in force because 275.79 mt had been short delivered; the bill of lading would only be discharged upon delivery of the full cargo. Phillips J rejected that argument; after analysing the cases to which I have referred, he added at p 608:
“So long as the contract is not discharged, the bill of lading in my view, remains a document of title by endorsement and delivery of which the rights of property in the goods can be transferred…
The discharge of the contract referred to by Diplock J occurs, in my view, when the primary obligations of the contract of carriage come to an end, notwithstanding that the carrier may have incurred secondary obligations as a consequence of the breach of those primary obligations. In this case, once the Delfini had arrived at [the discharge port], discharged the vast majority of the cargo loaded … and sailed away, the contract of carriage was discharged by performance. Thereafter any remedy against the defendants lay in a claim for damages for breach”
In the Court of Appeal [1990] 1 Lloyd’s Rep 252, the court did not find it necessary to deal with the issue as to whether the bills of lading were discharged.
In the Future Express [1992] 2 Lloyd’s Rep 79, the cargo was delivered against an indemnity to a person who did not have a right to delivery under the bill of lading; one of the many issues that arose was whether the bill of lading was spent. Judge Diamond QC held, following the passage from the judgment of Willes J, that the bill of lading had not become spent, as the goods had not been delivered to a person who had a right to demand delivery or was entitled to them. He went on to observe that it was a difficult question as to whether the bill of lading was spent as a document of title, if the cargo was delivered against an indemnity to a person authorised to receive delivery; he said:
“To hold that a bill of lading becomes spent when goods are delivered against an indemnity would greatly detract from the value of bills of lading as documents of title to goods, would diminish their value to bankers and other persons who have to rely upon them for security and would facilitate fraud.”
He held that it was not necessary to decide the question, in view of the fact that the bill was not in any event spent as delivery had not been made to the person entitled. In the Court of Appeal [1993] 2 Lloyd’s Rep 542, the decision was affirmed on grounds which made it unnecessary for the Court of Appeal to decide the issue on whether the bill of lading was spent.
As Gold Crown had no right to take delivery, it is my view that the bills of lading were not spent when the goods were delivered to them. It is clear on the basis of the long accepted dictum of Willes J that a bill of lading remains in force even if the goods are misdelivered to a person not entitled to them. The reason is clear. At or after the time of misdelivery to a person not entitled, the bill of lading may be being negotiated between banks on the basis that it is still a valid document of title. In short haul bulk trades, it is not uncommon that the cargo arrives at the port of destination whilst the documents are still being negotiated (see for example the practice in the European oil trade described by Staughton J in The Sagona [1984] 1 Lloyd’s Rep 194 at 200). Until the goods are delivered to the person actually entitled, the bill of lading must remain the document of title to the goods. Although there may be a debate as to whether a bill is or is not spent when the goods are delivered against an indemnity to a person entitled to them (cf Carver on Bills of Lading at para 6-009), there can be no doubt that they are not spent when the goods are delivered to a person not entitled.
But even if the bill of lading is not in these circumstances spent and thus remains the document of title to the goods, can it be said that there is still a right to possess as against the carrier within the meaning of the 1992 Act, when the carrier no longer has the goods? The claimants contended that there was no right to possess, as there could not be a right to posses that which the carrier did not have; there only existed a secondary right to damages. I do not agree. It seems to me clear from the 1992 Act that the reference to the right to possess is a reference to one of the primary rights emanating from the bill of lading’s function as a document of title. Even if it were not clear from the wording of the 1992 Act, the explanatory notes to s. 2(2) and s. 5(2) make it clear that the references are to circumstances where the bill of lading has ceased to be a transferable document of title; the note also refers to paragraphs 2.43-2.44 of the Law Commissions Report which also makes this clear.
I therefore conclude that the s.2(2) was not applicable, as the bills of lading still gave a right to possession of the goods as against the carrier. If, contrary to that view, I had concluded that s.2(2) was applicable, then I would have been satisfied that there were arrangements in force from the outset of the transaction under which the Chilean banks would return the documents to the claimants in the event that they were not taken up by Gold Crown. This seems to me to have been implicit in the way in which the Chilean banks were retained in this case to collect payment from Gold Crown.
(iv) Did the claimants have rights of suit in bailment?
The claimants contended that rights of suit in bailment subsisted, even if they had no rights of suit under the bill of lading contract because of the provisions of the 1992 Act. As bailors they were entitled to sue Maersk and P&O in conversion.
The principal question to which the submission gave rise was whether the claimants retained an immediate right as against Maersk and P&O as carriers to possess the goods. It was common ground that the claimants could only claim in bailment, if they were at all times entitled to immediate possession of the goods.
Maersk and P&O contended that as the Chilean banks became the lawful holders of the bills under the provisions of the 1992 Act, they became the parties entitled to immediate possession. The claimants could not therefore be entitled to immediate possession.
The claimants’ answer to this short contention was as follows:
A bailment arose on shipment between the claimants as shippers and the carriers (Maersk and P&O).
At common law the transfer of a bill of lading to another did not transfer constructive possession unless that was the intention of the parties; they relied on the judgment of Lloyd LJ in the Future Express in the Court of Appeal [1993] 2 Lloyd’s Rep 542 at p 547.
There had been no such intention, as the claimants intended to retain control over the goods. There was also no attornment as there was no intention to transfer title to the goods; the claimants relied on the judgment of Judge Diamond QC in The Federal Express [1992] 2 Lloyd’s Rep 79 at 95 and a passage in the speech of Lord Brandon of Oakbrook in The Aliakmon [1986] 2 Lloyd’s Rep 1 at 10.
The 1992 Act did not affect that position; the Act only transferred rights in contract and not in bailment. Furthermore the only rights of suit transferred in contract were “rights of suit” and not primary rights such as the right to possess.
As between the Chilean Banks and the claimants, it was the claimants as the owners of the goods and the persons entitled to them who were entitled to immediate possession of the goods; Maersk and P&O would have been bound to deliver to the claimants as the true owners, if the claimants had sought delivery.
The Chilean banks had at most a contractual right to possession under the bills of lading. A mere contractual right to possession was not sufficient to found a right to sue in conversion: Jarvis v Williams [1955] 1 WLR 71; International Factors v Rodriguez [1979] QB 351 at 357.
If, contrary to their submissions, the Chilean banks had a right to immediate possession, they had a right to do so only as agents of the claimants.
It is necessary to examine each stage of this argument, beginning with the position at common law.
At common law, the right to possession under the bailment created on the issue of the bill of lading was, by mercantile custom, capable of transfer by endorsement of the bill of lading; the indorsement and delivery of the bill of lading were capable of transferring the endorser’s right to possession of the goods to the endorsee. What effect that had on rights of property depended on the intention of the parties. A special or general property in goods was only passed if that was the intention; as Lord Bramwell said in Sewell v Burdick (1884) 10 App Cas 74 at 105: “..the property does not pass by the indorsement, but by the contract in pursuance of which the indorsement is made”. For example, if the bill was endorsed to an agent to enable him to sell the goods, no property would pass to the agent: see Scrutton (20th edition): Article 104(3) and the old cases of Waring v Cox (1808) 1 Camp 369 and Patten v Thompson (1816) 5 M&S 350 (which explains this partly on the grounds that no consideration or value was given for the transfer). The position was summarised by Lloyd LJ in The Future Express in accepting the correctness of counsel’s submission that
“… just as the transfer of the bill of lading only operates to transfer the general property in the goods if that is the intention of the parties, so it only operates to transfer the special property when the transferor so intends.”
Contractual rights were not transferred by mercantile custom and so the transferee of the bill of lading could not sue under the contract of carriage contained in the bill of lading; the purpose of the Bills of Lading Act 1855 was to remedy this in situations where the common law had been unable to provide a remedy – see the analysis of Lord Hobhouse of Woodborough in The Berge Sisar [2001] 2 WLR 1118 at paragraphs 18 to 21. Under the law prior to the 1855 Act, the rights and obligations in contract could become separated from the right of the endorsee to the possession, and to demand delivery, of the goods: (see paragraph 19 of his speech). The 1855 Act, however, only transferred the rights under the contract contained in the bill of lading when the property in the goods passed upon or by reason of the consignment or endorsement; this gave rise to difficulties where the property did not pass in such circumstances.
The intention and effect of the 1992 Act was to sever the link between the transfer of rights under the contract of carriage and the passing of property which the Law Commission considered had caused the difficulties. The effect of the 1992 Act was, however, only on the contract of carriage. This was made clear by Lord Hobhouse of Woodborough in The Berge Sisar. After referring to the Report of the Law Commission, he stated at p 1134:
“ But it must be observed that all these statements in the report, like the terminology used in the Act are expressed in terms which refer explicitly to “the contract of carriage” and not to the right of the holder of the endorsed bill of lading to possession of the goods as against the bailee. It is thus categorising the delivery up of the goods in this context as the performance of a contractual obligation and not a bailment obligation. This is not objectionable since where there is a contract of carriage, the contract certainly includes a contractual obligation to deliver the goods. …the bailment is a contractual bailment. The relationship of the original parties to the contract of carriage is a contractually mutual relationship, each having contractual rights against the other. The important point which is demonstrated by this part of the report, and carried through into the Act is that the contractual rights, not the proprietary rights (be they special or general), that are to be relevant. The relevant consideration is the mutuality of the contractual relationship transferred to the endorsee and the reciprocal contractual rights and obligations that arise from that relationship.”
Thus rights are acquired under the 1992 Act irrespective of the contractual provisions as to the passing of property between the shipper and the person who becomes the holder.
The rights transferred to the lawful holder under the 1992 Act are the “rights of suit”; this phrase was taken from the 1855 Act. Although “rights of suit” have been described as rights of “suing upon the contract” (as in The Freedom (1871)LR 3 PC 594 at 599), the phrase was not used to distinguish “rights of suit” from “rights under the contract”. It is clear, in my view, that the phrase refers not merely to the right to sue, but the rights under the contract. These include the contractual right as against the carrier to demand delivery against presentation of the bill of lading and hence the right to possess. Not only is the language of the 1992 Act clear, but it is also clear from the Law Commission Report and in particular paragraphs 2.34 and 3.13-3.21 that it was intended that “rights of suit” include the right to demand delivery. It would make no sense to the scheme of the 1992 Act if the contractual right to demand delivery from the carrier was excluded from the rights transferred.
The 1992 Act does not in terms affect rights in bailment: see the Report of the Law Commission and the speech of Lord Hobhouse to which I have referred. But the question arises as to whether there are rights in bailment to immediate possession independent of the contract contained in the bill of lading. Rights in bailment subsist in many cases independent of a contract, as the obligations between bailor and bailee arise out of the bailment and are not dependent on there being a contract. I accept that the analysis of Professor Palmer in Bailment can apply in such cases and the duties of the bailor can be seen as arising out of the voluntary assumption of possession of another’s goods.
However, the rights as between bailor and bailee are often governed by a contract; where there is a contract, the contract may modify or define the obligations in bailment. In the present case, the right to possess the goods entrusted to the carrier was governed by the contract contained in the bill of lading; it was not independent of it. As between the carriers (P&O and Maersk) and the claimants as shippers, there was no agreement as to the terms of the bailment other than the terms set out in the bill of lading. Under the terms of the contract contained in the bill of lading, the goods were to be delivered against presentation of the bill of lading (as I subsequently discuss at paragraphs 120 to 129 where I accept the submissions of the claimants on that issue). There was no separate agreement with the claimants as shippers that the rights of the consignees or holders of the bill of lading should be other than those set out in the bill of lading. When these contractual rights were transferred by s.2(1) of the 1992 Act to the Chilean Banks, the claimants lost their contractual right to immediate possession under s.2(5) of the Act for the reasons set out. As between themselves and the carriers (Maersk and P&O) their rights in bailment and their rights under the contract were the same; there were no separate rights. It was only as between the claimants and the Chilean banks that the rights were different, but the position under the arrangements between the Chilean banks and the claimants did not affect the contractual rights under the bills of lading between the carriers and the Chilean banks.
The lawful holder of a bill of lading clearly cannot acquire under the 1992 Act rights which the tranferor did not have (see the discussion of Finlay v The Liverpool and Great Western Steamship Co (1870) 23 LT 251 at paragraph 5-027 of Carver on Bills of Lading and at p 578 of “The Bill of Lading as a Document of Title” at chapter 22 of Palmer & McKendrick: Interests in Goods). Therefore as between the carrier and the lawful holder of the bill of lading, the right of the lawful holder to immediate possession of the goods can be defeated where the transferor to him did not have the right to transfer the bill. However, if the shipper was the true owner of the goods and had the right to immediate possession under the bill of lading, then by operation of the 1992 Act that contractual right to immediate possession is transferred, even if the shipper remained as between the shipper and the transferee the party entitled to delivery. The rights under the bill of lading operate independently of the arrangements under the banking relationships.
The right so transferred is not a “mere contractual” right to possession of the goods of the kind discussed in Jarvis v Williams and International Factors v Rodriguez. The contractual rights that are transferred by transfer of the bill of lading include the obligation to delivery under the bailment. Though the rights under the contract and possessory rights can be separated, they are not separated in these circumstances for the reasons I have given.
Thus I have reached the view that there were no separate rights in bailment that were retained by the claimants. But the question remains as to whether the Chilean banks acquired the rights as agents for the claimants? It seems clear that if an agent has a right to possession for an undisclosed principal that right can in many circumstances be exercised by the principal: see the judgment of Hope JA in Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141. However in this case the rights so obtained were obtained by the Chilean banks as consignees under the 1992 Act and for the reasons given in paragraph 31, they could not have been acquired by them in their capacity as agents.
(v) A claim in negligence
As a final alternative, the claimants contended that they could maintain a claim for negligence against Maersk and P&O based on their possessory and proprietary interest in the goods.
For the reasons given, I have concluded that the claimants did not have any possessory rights. However, the claimants relied on the fact that a claim for negligence could be brought by a person who only had a proprietary right without the immediate right to possess.
Maersk and P&O accepted that there could be a claim if the goods had been damaged or destroyed (by, for example being thrown overboard); in such a case there would have been damage to that bare proprietary right and if negligent, there would have been a claim. They also accepted that there could be a claim for negligent damage to a proprietary interest, provided there was damage to that interest by physical damage to the property or through the extinguishment of the claimant’s proprietary interest through transfer of title to a third party. They contended that as the goods carried by them were only in the hands of a person not entitled to them, then there was no damage to the claimants’ proprietary rights. The claimants still owned the goods as Gold Crown had no proper title to them; they were not physically damaged and the claimants’ title was not extinguished. The actual claim of the claimants was damage to their possessory rights and not to their proprietary rights as those had not been interfered with.
The circumstances in which a claim lies in negligence for damage to a proprietary interest are set out in Clerk & Lindsell on Torts (18th edition) at paragraph 14-142 and the cases there referred to, in particular Mears v L&SWR (1862) 11 CBNS 850. The claimants must prove that the negligence of Maersk and P&O deprived them of their interest in circumstances in which the goods could not be recovered. At one stage in the proceedings it was suggested that the claimants should have sued to recover the goods from Gold Crown, but quite rightly that was not pursued. I am quite satisfied that it was wholly impracticable for the claimants to have sought to recover the goods from Gold Crown in Chile; thus they were permanently deprived of their proprietary interest and thus they can maintain this claim against Maersk and P&O.
This claim based on their proprietary rights is outside the scope of and independent of the 1992 Act.
Conclusion on title to sue
I have therefore come to the view that the claimants can maintain a claim on one of the grounds they have advanced on all the bills of lading and also a claim under Maersk bill no. 4 on a further ground.
Issue 2: The obligation to deliver
The bills of lading were governed by an express choice of English law. Under Article 10 of the Rome Convention, English law therefore applied to the performance of the contract, though by Article 10(2)
“in relation to the manner of performance and the steps to be taken in the event of defective performance, regard is to be had to the law of the country where performance is to take place.”
The claimants contended that the obligation to deliver was governed entirely by English law and that Maersk and P&O were in breach by delivering without presentation of the bill of lading. Maersk and P&O denied that they were in breach as a matter of English law, but also contended that under the law of Chile which was material to the performance of that obligation they were plainly not in breach. Three questions therefore arose:
i) Was the law of Chile relevant to the delivery obligation?
ii) If it was, what were its provisions and were the carriers discharged from responsibility under that law?
iii) What were the consequences under the terms of the bills of lading which were governed by English law ?
The effect of Article 10 of the Rome Convention is to maintain a distinction between the substance of the obligation which is governed by the proper law (in this case English law) and the mode (or manner and method) of performance which is governed by the law of the place of performance – Chile. Before considering this distinction, it is necessary first to set out my findings in relation to the law of Chile.
The provisions of the law of Chile relating to delivery: the Customs laws
Maersk and P&O accepted that there was no provision in the Commercial Code of Chile that expressly relieved a carrier of any obligation to deliver goods otherwise than against presentation of an original bill of lading. However, they contended that it was the inevitable result of Chilean customs law and procedure that they were obliged to deliver the goods without presentation to them of an original bill of lading. They submitted that under the Customs law of Chile a carrier was obliged to deliver goods on which duty had not been paid to the Customs Authority; the carrier lost all control over the goods and the Customs determined who had the right to take delivery of the cargo. Furthermore under the Hamburg Rules this constituted good delivery under the bill of lading.
Before considering the Hamburg Rules, it is necessary first to consider the Customs law of Chile. There was a difference between the parties as to that law. Each adduced expert evidence to assist the Court in making its findings on that law in accordance with the observations of Scott LJ in A/S Tallinna Laevauhisus v Estonian State Shipping Line (1946) 80 Lloyd’s Rep 99 at 107.
The experts
The experts called were well qualified to give evidence on Chilean law:
The claimants called Mr Sahurie; he had studied law at Valparaiso and Yale Universities and had practised law for several years, specialising in commercial and international law.
Maersk and P&O called Mr Tomasello; he had specialised in maritime law in Chile since 1970 and lectured at a University since 1966 in civil law and since 1995 in maritime law. He had written several works on Chilean law.
Both witnesses were plainly expert in the field of maritime and customs law; they were both of unquestioned integrity and did their utmost to help the court.
I considered, however, that Mr Sahurie was clearly the more objective and reliable witness; Mr Tomasello identified himself through his enthusiasm far too closely with the case of Maersk and P&O for evidence to be considered objective; Mr Tomasello’s practice involved the representation of shipowners and P&I clubs and he did not act for cargo. He saw matters through the eyes of shipowners and that, in my view, affected the objectivity of his evidence. In contrast, Mr Sahurie gave his evidence in an objective manner; his evidence was broadly coherent and consistent and, against an examination of the materials before me on Chilean law, the more logically compelling. Wherever their view differed in relation to the construction of the law relating to Customs, I preferred the evidence of Mr Sahurie.
The general provisions of the Customs laws and the areas of dispute
The general provisions of the Customs laws and procedures were not in dispute and must briefly be described. The provisions of Chilean Customs law are primarily contained in the Customs Ordinance; the version before the court was one promulgated in 1998 which came into force on 17 January 1999; it was common ground that there was no material distinction with the version which was in force in 1998 when some of the goods arrived in Chile.
The procedure for dealing with goods imported into Chile depended upon whether goods had been cleared through Customs in advance (retiro directo) or not (retiro indirecto). The goods shipped by the claimants had not been cleared through Customs in advance and therefore it is necessary only to consider the law and procedure applicable to such goods (retiro indirecto).
The normal procedure was a two stage one. First the cargo manifest had to be submitted and “presented” to Customs by the carrier (Articles 35 and 37 of the Customs Ordinance). Second, the carrier was also obliged to deliver the goods to a warehouse subject to the jurisdiction of the Customs – the Customs primary zone (Articles 16, 34, 44 and 46). Warehouse facilities were operated by the state corporation, Empressa Porturia de Chile (Emporchi) or private companies licensed by Customs to operate Customs warehouses. Until December 1997, Emporchi operated the ports in Chile as a single state corporation. It was then divided into ten separate companies including Empressa Porturia de Chile de San Antonio (Emporchi de San Antonio). Article 9 of the law which effected this change (Law 19542 of 19 December 1997) permitted the new entities to enter into contracts with others which were to be governed by private law. Customs warehouses were either within the limits of the port or could be outside them; wherever they were, they were within the jurisdiction of the Customs and within the Customs primary zone; their operation was governed by the Customs Ordinance (in particular Articles 44, 45, 56, 57 and 60). Regulations provided that cargo had to be delivered to the warehouse within 24 hours of unloading (Article 2.3 of the Customs Compendium and Article 9 of Presidential Decree 298 of 24 March 1999).
In this particular case the warehousing of the goods, as summarised in paragraph 6 was:
The goods carried by Maersk were placed in a warehouse operated by Seaport SA, a private operator licensed by Customs; on 19 January 1999 (before 2 out of the 7 consignments carried were released to Gold Crown), Maersk entered into a service agreement with Seaport; this provided by clause 6 for Seaport to take custody of cargo until the consignee withdrew the cargo. Under appendix 1 to this agreement entitled “Reception and Storage of Import Cargo”, Seaport agreed to:
“deliver the cargo to the consignee or its representative after the consignee has completed all Customs clearing procedures involved. ”
The goods carried by P&O were placed by the ship’s agents, Agencias Universales SA, in a warehouse operated by Emporchi de San Antonio.
Upon receipt of the goods, the operator of the warehouse issued a “Documento Portuario Unico” (DPU) which operated for the carrier or his agent as a receipt of the goods received into the warehouse; it recorded matters such as the time and date of receipt and the condition of the goods.
The goods then had to remain “under jurisdiction [control] in the authorised premises” or “in the Customs depots” until they were withdrawn (Articles 45 and 56 of the Customs Ordinance). Goods in practice remained in the warehouses until Customs clearance was obtained and the warehouse provider was paid for its services. This was done by the consignee’s Customs agent.
A Customs agent (who acted for the consignee) was licensed by the National Director for Customs; regulations govern what he could do. The usual practice was for the consignee to endorse the bill of lading to the customs agent (see Article 222); this constituted his authority. The Customs agent also had a duty to verify to the Customs that his principal was entitled to the goods. The Customs agent was a ministro de fe –an “attesting witness” or “attesting judge”; thus he could certify photocopies of documents used in Customs procedures. Other duties were imposed on him such as keeping the documents for 5 years (Article 77).
The normal practice was for the Customs agent to present to the warehouse operator the appropriate documentation – a Customs Destination Document legalised by the Customs, normally a Import Declaration. The Compendium of Customs Regulations provided that the Import Declaration was to be drawn up on the basis of various documents, including the original bill of lading (Article 5.1). The Import Declaration duly legalised by the Customs and the payment voucher in respect of Customs duty were presented to the warehouse operator prior to release of the goods.
There were some differences in procedure in the case of containers. Because of the increase in container traffic, administrative functions relating to Customs were transferred to persons known as “Container Operators” in 1995 under Regulation made under Customs Resolution No 2808 of 12 April 1995. It was very common for the agent of the carrier to act as a Container Operator. Container Operators were authorised to issue a form called a TATC (Title for the Temporary Admission of Containers). The form enabled the container, once the form was legalised by Customs and had been presented to the warehouse operator, to leave the Customs primary zone on a temporary basis. Strictly the TATC applied only to the container.
In this particular case,
Maersk’s agent, AJ Broom, were also licensed Container Operators and by an agreement with Maersk made in 1994 were remunerated for issuing TATC forms.
In the case of P&O, its contract for the period 1 January 1997 to 31 December 1999 with its agents in Chile, Sudamericanan Agencias Aereas Y Maritimas SA (SAAM) provided that SAAM, as a licensed Container Operator, should provide a service in respect of container discharge and should issue TATC forms; SAAM was to be responsible for “whole containers TATC processes which include all diligences related with matter according to Customs Services rules.” SAAM issued the TATC form for the goods carried by P&O on 15 March 1999.
Neither Container Operator asked for an original bill of lading before allowing the goods to be taken by Gold Crown’s agent.
The main dispute between the experts related to the questions as to (a) whether receipt into the Customs warehouse constituted delivery by the carrier to Customs and the end of the carrier’s responsibility, (b) whether the warehouse had to accept the statement of the Customs agent that a copy bill of lading was sufficient and (c) whether the carrier could ask the warehouse to demand an original bill of lading or ensure that under the TATC procedure the Container Operator asked for presentation of an original bill of lading.
It was, in summary, the evidence of Mr Sahurie:
The carrier was not obliged to deliver the cargo to Customs; the duty to “present” was the duty to place the goods under the jurisdiction of the customs authorities so that they could collect the duty. Goods were not received by the Customs into their possession; they merely came within their jurisdiction.
It was possible for the carrier to enter into contracts with warehouses on terms which enabled the carrier to insist on the presentation of original bills of lading. Even if there was no such contract, nothing prevented the carrier instructing the warehouse to withhold delivery of the goods unless an original bill of lading was presented.
There was nothing that prevented the warehouse checking the authority of the Customs agent to withdraw the goods.
In the case of containers, it was a matter for the carrier’s agent as Container Operator to refuse to issue the TATC without presentation of the original bill of lading; in his experience the refusal to issue the TATC was used to ensure freight was collected. Although technically the TATC might only apply to the container itself, the goods within the container and the container were an indivisible unit for the purposes of withdrawing the goods from the primary zone.
Whilst it was rare in Chile for the Customs agent to be asked for the original bill of lading (as the warehouse normally relied on the Customs Destination Document), any interested party could require presentation of the bill of lading.
Mr Tomasello’s evidence, in summary, was that:
There was nothing that obliged a carrier to deliver at all if he did not want to and wished to keep the cargo aboard the vessel, though he might be in breach of his contract of carriage.
If the carrier did discharge the cargo, he had to “present” the cargo directly to the Customs at the warehouse without presentation of a bill of lading; once he had done that his responsibility was at an end and he had lost control over and possession of the cargo. His action in presenting was a delivery to the Customs; he relied particularly on Article 16 of the Customs Ordinance. Thereafter it was the responsibility of Customs to determine who had the right to collect the cargo
It was accepted by Maersk and P&O that the warehouse operator was not acting as agent of the consignee and delivery to the warehouse was not delivery to the consignee. I did not understand Mr Tomasello’s evidence to be to the contrary.
The carrier had no dealings with the Customs agent of the consignee, as it was the responsibility of the Customs agent to obtain delivery from the warehouse operator. He relied heavily on a decision of the Court of Appeal of Valparaiso dated 7 December 1972 in which the court stated:
“ In Chile, there is no direct or immediate relationship between [the ocean carrier] and the consignee of the cargo, but there is an intermediary who receives the goods and keeps them on deposit until corresponding customs formalities and requirements are fulfilled. This intermediary is Emporchi to whom the law has entrusted the reception of the goods that are in the possession of the [ocean carrier] who deposits them in their warehouses … until the entire customs procedure of revision and cataloguing of the goods, determination of their origin and their import, … is fulfilled. [Emporchi] are a corporate body of public law which has been created precisely for the purpose of receiving the goods in possession [of the ocean carrier] and subsequently delivering them to the consignee. ”
Although since that decision Emporchi had been broken into 10 separate companies and private warehouses also operated, all of these new companies fulfilled precisely the same functions as Emporchi had done. In 1981 the rule that required the Customs agent to obtain the approval of the vessel’s agents for the cargo to be withdrawn from the warehouse had been abolished.
When the original bill of lading was not available to the Customs agent when he completed the Customs declaration, a copy could take its place if that was authorised by the carrier and the copy annotated to the effect that it replaced the original for all legal purposes. The Customs agent was then obliged to keep the copy until the original bill of lading was provided. It was the responsibility of the Customs Service to verify the entitlement of the consignee to the cargo, but they relied heavily on the status of the customs agent as an “attesting judge” or “attesting witness”. Once the Import Declaration was legalised by the Customs, the Customs warehouse operator was not entitled to question the right of the Customs agent to collect the goods on behalf of the consignee. The warehouse operator had no right to demand to see the original bill of lading. The entitlement of the Customs agent to obtain the cargo could only be challenged by the Customs.
It was not permissible for the operator of a Customs warehouse to enter into a contract incompatible with its status in performing its public duty; in particular, a contractual obligation could not entitle the warehouse operator to question the authority of the Customs agent to withdraw the goods.
The TATC was issued by the Container Operator in his capacity as Container Operator and not as agent for the carrier. As such he was performing a public function and could not demand sight of an original bill of lading as a condition of issuing a TATC.
(a) The effect of delivery to the Customs warehouse
The first question to consider is the effect under Chilean Customs law of the requirement that the goods be delivered to the Customs warehouse. I have come to the clear view that, under the law of Chile, delivery by a carrier to the Customs warehouse was not a delivery to Customs and was not a delivery of the goods in the sense that this relinquished the carrier’s control over them.
In considering the effect and meaning of the Customs Ordinance, it is necessary as a matter of the law of Chile to consider the purpose of that Ordinance as set out in Article 1.2. That Article provided that the role of the Customs was to watch over and supervise the passage of merchandise through the coastlines and frontiers of Chile for purposes of collecting Customs duty and for producing statistics.
In my view Mr Sahurie was right in the distinction he drew under the Ordinance construed in the light of Article 1.2 between on the one hand delivery to the Customs of Chile and on the other hand delivery to a Customs warehouse licensed by Customs and operated either by Emporchi or by a private operator. In my view he was correct in his opinion that goods never came into the physical possession of the Customs; they only came under its jurisdiction. The goods were to be physically delivered to and received by the Customs warehouse operator; the Customs warehouse operator then became responsible for them if they were damaged or lost. Two key articles were Articles 16 and 17:
“Article 16
The goods which must enter or leave through the ports of other authorised places, shall be delivered to Customs at the point of its primary zone indicated by its administrator or Head, at the request of the consignee without further formality.
This article has to be understood as covering the two stage process that customs clearance involves – first the presentation of the manifest and the subsequent delivery to the Customs warehouse operator. The same is the case in Article 46 which uses similar words.
Article 17
While within the primary zone of jurisdiction and without prejudice to the attributions of the competent authorities, all vehicles, their vehicles, their passengers and their cargoes, shall be submitted to the authority of the respective Customs, but the latter shall only respond [have responsibility for damage to] for the goods after having been checked and finally received by them.”
I accept the evidence of Mr Sahurie that Article 17 means that the goods come under the power or jurisdiction of the Customs; but, as the Customs never take possession of the goods, they did not become responsible for the goods. It was the warehouse operator that was responsible. Mr Sahurie’s evidence (which I accept) was that many years ago the Customs authorities actually received the goods themselves; the system had then changed to a mixed system. From the 1980s or 1990s, the goods were received by Customs warehouses; in so doing the Customs warehouses were not carrying out a delegated function of the state of Chile. The system had changed. It was entities such as Emporchi against whom claims were made, as they were in physical possession of the goods. There is a clear distinction drawn between the warehouses being within and subject to the jurisdiction of Customs and the warehouses being treated as if they were part of the Customs. In performing their functions, the warehouse operators were not carrying out any delegated function of the state save in relation to obligations owed to Customs such as the collection of taxes.
I also accept the evidence of Mr Sahurie that the decision of the Valparaiso Court of Appeal of 7 September 1972 (to which I referred in summarising the evidence of Mr Tomasello at paragraph 81) was not determinative of the position in Chile in 1998/9. Mr Sahurie accepted in oral evidence that this decision represented the law of Chile at the time it was given; Emporchi then was the state monopoly which arranged the warehousing of all imports into Chile. However, the position had changed in many respects, including the incorporation of the Hamburg Rules, Chile’s adherence to the UN Convention on the sale of goods and changes in Emporchi and to practice. The position was very different to what had been the case in 1972. Emporchi has been broken into 10 companies and there were also the private warehouse operators. Carriers were in a position to enter into contracts with them in relation to delivery to the consignee, as I discuss below at paragraph 98.
There are two further factors which support this view. First, in the event of misdelivery, if the carrier’s responsibility had terminated on delivery to the Customs, the only claim would be that of an unsecured claim against the Customs agent. That can hardly have been intended. In view of the provisions of Article 97, it seems unlikely that a claim against the Customs would be successful. Mr Tomasello initially stated that a claim could not be made against the Customs agent because he was part of the state, but later suggested that he could be sued and the bond the Customs agent provided would amount to security. I accept that there might be a claim against the Customs agent, but the bond would not respond under the terms of Article 230. Second, as bills of lading continue to play an essential role in the financing of international trade by sea, I have no doubt that a Chilean Court would prefer a construction of the Customs Ordinance which protected the security of banks; that could only be achieved, given the changes that had occurred, by holding that delivery to the Customs warehouse did not mean that the responsibility of the carrier was at an end.
(b) The effect of the demand of the Customs agent
The second question is whether the operator of the Customs warehouse had to accept the entitlement of the Customs agent to obtain the delivery of the goods and could not require the presentation of an original bill of lading.
Mr Tomasello relied on Articles 56 and 104 of the Customs Ordinance. However, all that Article 56 provided was that the goods had to remain in the Customs warehouse until they were withdrawn for import or export or to be sent to another Customs destination; it did not deal with the question as to the terms upon which goods were to be withdrawn. Article 104 provided:
“The declaration duly processed and the payment voucher as may be the case shall entitle the interested party to withdraw goods from the Customs depot”
This meant no more than, as far as Customs were concerned that, when Customs duty was paid, goods could be withdrawn from the Customs warehouse and from the jurisdiction of Customs. It obliged the warehouse operator, so far as Customs were concerned, to release the goods to an interested party which presented the appropriate documentation to show the goods had been cleared through Customs. It had no other consequence. I accept the evidence of Mr Sahurie to this effect; he was correct in my view in stating that although normally a warehouse operator would accept the legalised Import Declaration as sufficient, trusting that the Customs agent had done his work properly, and not ask to see the original bill of lading, he was entitled to ask for it to satisfy himself that the goods were, after Customs clearance, being delivered to the person entitled under the bill of lading.
Nor does Article 220 assist Maersk and P&O. This Article provides, in part,:
“The Customs agent is a professional assistant or auxiliary to the Customs public function and his license enables him before Customs to render services to third parties as a representative when obtaining clearance of the goods.
These Customs agent shall have the capacity as Ministros de fe in so far that Customs may consider as a true fact that the data requested in the declarations contained in the relevant dispatch documents, including the liquidation of Customs duties are in accordance with the antecedents which legally must serve as a basis. The above is without prejudice to the checking which may be undertaken by Customs public officials in any moment in order to verify that the statement/certificate is correct.
……..”
There was a dispute as to the correct translation of Ministros de fe; Mr Sahurie considered that it meant qualified attesting witness, Mr Tomasello that it meant “attesting judge”. It may not matter which was correct; it is clear that the function was one of certifying the fact that a copy was a true copy or that a fact stated was true. I accept Mr Sahurie’s evidence that the certification of a document by the customs agent in his capacity of “Ministero de Fe” only entitled him to certify as true copies, the documents he had in his file.
The creation of and terms of the mandate of the Customs agent was governed by Article 222; its opening phrase was:
“The act by means of which the owner, consignor or consignee entrusts the clearance of his goods to a Customs agent who accepts this job is a mandate ruled by the provisions of this Ordinance .. and, alternatively by the provisions of the Civil Code.”
Reading these Articles together and taking account of Article 1.2, it is clear that the mandate of the Customs agent under the Ordinance was for the purpose of clearing the goods through Customs; Mr Tomasello accepted that the passage from Article 220 which I have quoted referred to “clearance” and not “delivery”. The Customs agent’s function under that Ordinance (in attesting that the copies were true and the truth of which could not then be challenged) was a function in that capacity. For Customs purposes he authenticated copies and for that purpose and third parties were not entitled to question for Customs purposes what he stated, but that did not mean that they were authenticated for other purposes. It did not mean that they had to be accepted for other purposes. I accept the evidence of Mr Sahurie to that effect. Furthermore Mr Tomasello accepted that although Customs had to accept the truth of what was stated in the declaration, there was only a presumption to that effect in respect of others. Maersk and P&O relied upon a letter written by the Inspection sub-Directorate of the National Customs Office to a judge of the Criminal Court in Valparaiso about the events in this case; the letter concluded that the Customs agent had been guilty of a serious breach of the Customs Ordinance and of the trust placed in him. Part of the letter stated:
“At the time when the goods are withdrawn from deposit premises, presentation of the relevant bill of lading is not required. The Customs agent signing the Customs delivery statements must have prepared it in accordance with … the original bill of lading… It is necessary to notify you that the Service only inspects delivery statements selectively…. ”
This letter did not detract at all from Mr Sahurie’s evidence; it was looking at the issue from the perspective of Customs and did not deal with the distinction drawn by Mr Sahurie.
It was common ground that the Customs agent had to retain all three original bills of lading; he could not surrender one to the carrier for the carrier to keep. However I accept the evidence of Mr Sahurie that this did not mean that the original bill of lading did not have to be produced and shown before the goods were released.
Nor do I consider that legal report 009 of 26 February 1986 assists. In that report the Head of the Customs Legal Department advised that the Customs had no right to retain goods until security was provided for contributions in general average; their powers were restricted to the collection of duties as set out in Article 1 of the Customs Ordinance; they were not entitled to use their powers for other purposes by intervening in a private dispute. This was simply, as Mr Sahurie stated, a report concerned with the powers of Customs and had no bearing on the entitlement to demand presentation of an original bill of lading. Furthermore, I accept the evidence of Mr Sahurie that the law of Chile has changed. At the time of the report, a carrier had to go to court to obtain an order entitling him to retain the goods; by express provision under Article 1114 of the Code of Commerce, the carrier has since 1988 been entitled to retain the goods until general average is paid or secured.
Under the law of Chile, I accept the evidence of Mr Sahurie that there was nothing that precludes the warehouse operator from requesting sight of an original bill of lading before the goods were released. Indeed the evidence of Mr Parra, P&O’s cargo claims representative for Latin America based in Santiago Chile, was to the effect that, although the carrier’s agents acted on the basis of the Customs agent’s statements, they could ask for the original bill of lading; the Customs agent would in effect be bound to produce it as otherwise he would be denounced to Customs who would then check his file to see if it contained the original.
There is one further matter. After the conclusion of the evidence and the hearing, I allowed the parties further time to make and respond in writing to submissions of law, given the number of legal issues that had arisen and the wish of the court and the parties not to prolong the oral hearing. During the course of those responses, P&O sought to adduce further evidence; although initially they sought to put several further documents before the court, they confined their final application to a letter dated 5 October 2001 from Emporchi Valparaiso to P&O. The last paragraph of the letter stated:
“The withdrawal of goods from the warehouse limits is authorised by our Company in its capacity as a Warehouse only upon presentation of the legalised entry declaration (DI) and upon payment of duties (where appropriate). Consequently, it is not for us under any circumstances to require the original bill of lading as a requirement for delivery of the cargo, as this is not a function of this Company, given that this is a power only given to the National Customs Directorate”
I am prepared to admit this document as evidence from Emporchi Valparaiso, but its weight must be affected by the fact that it was not available to be put to Mr Sahurie at trial, that it was produced after a meeting between P&O and Emporchi, Valparaiso in circumstances which are not clear and that it deals essentially with a legal issue. The letter did not address the distinction which Mr Sahurie drew between the duties of a warehouse operator in respect of Customs and other duties that he could assume under contract with the shipowner. Although the letter stated that Emporchi Valparaiso could not require the original bill of lading in “ any circumstances”, it addressed only their relationship with Customs in the letter and not their ability to assume by contract the kind of duty about which Mr Sahurie gave evidence. I therefore found it of little assistance.
(c) Could the owner contract with the warehouse operator on terms requiring him to release only on presentation of the original bill of lading and use the TATC procedure for the same purpose?
It was common ground that a carrier could enter into a contract with a Customs warehouse operator or container operator provided that it was not inconsistent with their public duties. This had been so for the new Emporchi companies since the 1997 law to which I referred at paragraph 71.
Article 1 of Resolution No. 05274 of 13 November 1987 promulgated by the Customs stated that goods within the confines of Customs areas managed by private enterprises had to be carried out in accordance with the rules promulgated. However, there was nothing express in the Rules or elsewhere that prevented the warehouse operator asking for an original bill of lading.
I have set out above my acceptance of the evidence of Mr Sahurie that under the law of Chile goods were not delivered to Customs; that there was nothing in the status of the Customs agent that obliged a Customs warehouse operator to accept his entitlement to demand the goods without presentation of an original bill of lading. I have also considered Article 104 at paragraph 88; that Article imposed a public duty on the warehouse operator. However, I accept the clear distinction drawn by Mr Sahurie between the public duties of a warehouse operator and other duties; the public duties were those that related to the discharge of his Customs function. Although the warehouse operator could not be given instructions that contradicted the public duty under Article 104 entitling the Customs agent to withdraw the goods once the Customs requirements were complied with, that only applied to the duties of the warehouse operator as regards Customs. It did not affect obligations that arose under the contract of carriage and instructions could be given as regards obligations under the contract of carriage not inconsistent with that public duty. It is clear therefore that there was nothing in the law of Chile which made it inconsistent with the public duties of a Customs warehouse operator for that operator to be required by private contract between him and the carrier to demand presentation of an original bill of lading before delivering the goods after they had been cleared through Customs; I accept the evidence of Mr Sahurie there was nothing to prevent, and in particular nothing in Article 104 to prevent, a carrier asking for the presentation of an original bill of lading as envisaged by Article 977 of the Chilean Commercial Code, referred to at paragraph 112 below.
In 1981 the rule that required the Customs agent to obtain the approval of the vessel’s agents for the cargo to be withdrawn from the warehouse was abrogated. That, however, pertained before the changes to status of Emporchi; at that time, there was no need for the Customs agent to obtain approval as the carrier was protected by the then status of Emporchi. The change in 1981 had no bearing on this issue as the position had changed and it did not affect the contractual position between the warehouse operator and the carrier.
I am satisfied on the basis of Mr Sahurie’s evidence that, although cargo imported into Chile subject to the retiro indirecto system had to be delivered into Customs warehouses, the carrier could choose the Customs warehouse to which the goods were to be delivered and contract with that warehouse operator on terms that delivery of the goods should only be delivered against presentation of a bill of lading. Furthermore a prudent carrier should do so to fulfil his obligation under the bill of lading only to deliver to the holder of the bill of lading. Mr Sahurie accepted that in 1998 and 1999 some carriers did not enter into contracts with warehouse operators on terms that required warehouse operators only to deliver against presentation of an original bill of lading, though some did. Those who had not done this, acted as they did because of the historical position of Emporchi; they wanted to avoid a grey area and the cost of assuring goods were delivered correctly. The position had changed and many carriers were instructing their agents and the warehouse operators to ensure that the person withdrawing the goods had the original bill of lading.
As I have mentioned at paragraph 77, the procedure for containers differed; the carrier’s agent would commonly act as a Container Operator under a special licence from Customs and issue the TATC form; this was the case for both Maersk and P&O. Mr Sahurie was correct in my view in saying that when the carrier’s agent issued TATC forms he was acting as a Container Operator; in that capacity he was performing an obligation under private law and not a public law function. He was performing a function of facilitating paperwork and his responsibility to Customs was for any Customs duty that was not paid if the container was not re-exported. I reject the evidence of Mr Tomasello to the contrary; there is nothing to support his evidence that the function in issuing the form was a public one. Mr Sahurie was correct in saying this was essentially a paper work function.
It was clear that a Container Operator could demand to see an original bill of lading before the TATC was issued. On 29 December 1987, the head of the legal department of the Customs issued report no 74 which stated that it was in order for the container operator to demand the original bill of lading before issuing the TATC; if the original was not available, then a non negotiable copy certified by the bank which was the consignee could be used. The report observed:
“… the general rule when clearing goods from customs is that the consignment be established in the original B/L or an equivalent document which complies, amongst others, with the function of entitling the consignee in respect of the goods, being generally transferable by a simple endorsement all of which justify this requirement in full. ”
This report was confirmed by the National Director of Customs by resolution 284 of 1987. The arguments and conclusion of this report also support the evidence of Mr Sahurie in relation to the right of the warehouse operator to demand an original bill of lading.
I do not accept Mr Tomasello’s evidence to the contrary; in his expert report, Mr Tomasello made a number of criticisms of report no 74, but I do not accept them. For example, I have already set out my conclusion as to why a statement of a Customs agent can be questioned; nor is there a duty to issue a TATC, only a right to do so. Furthermore, it is in my view of no significance that the ruling is not mentioned in the regulations made under Resolution 2808 of 12 April 1995; these regulations deal with matters that concern the Customs, not the obligations of the carrier to the consignee.
Mr Parra accepted that a container operator could demand to see an original bill of lading before the TATC was issued and said that container operators often asked to see such documents to ensure that the container was delivered to the person entitled. Although Mr Parra said subsequently in his evidence that there was no obligation on a Customs agent to comply with the request other than by producing a copy certified by the Customs agent himself, he was unaware of report No 74 and wrong about the ability of carriers to enter into contracts with Emporchi and Seaport. Furthermore, as I have set out at paragraph 95, it was also Mr Parra’s evidence that if the original was not produced, the Customs agent could be reported to Customs. I therefore do not accept him as an altogether reliable witness and reject the subsequent qualification that he gave to his earlier evidence that a Container Operator could and did demand sight of an original bill of lading. The practice of AJ Broom, according to the written evidence of Mr Malinarich, their operations manager, was not to ask for the original bill of lading before issuing the TATC, though in his written evidence he accepted that it had become the practice of some, though by no means all, container operators to demand sight of a bill of lading or a copy before issuing the TATC. He also stated that it was only the Customs who could ask to see the original bill of lading and it was impossible to ask to see the TATC. He was not cross examined and his evidence is inconsistent with the practice of other operators and with report no 74. I therefore attach little weight to it.
Conclusion on the Customs law
I am satisfied that:
An ocean carrier carrying goods to Chile was not obliged, as a matter of the Customs law of Chile to deliver goods to the physical possession of Customs, but only to a Customs warehouse licensed by Customs and subject to the jurisdiction of Customs. Customs did not deliver the goods.
Ocean carriers were not precluded from entering into contracts requiring the Customs warehouse operator to deliver against presentation of an original bill of lading.
Neither the carrier nor the Customs warehouse keeper nor the Container Operator had to accept the entitlement of the Customs’ agent to possession of the goods without presentation of an original bill of lading.
I am therefore satisfied that Maersk and P&O were able to enter into contracts with both Customs warehouse operators and with Container Operators on terms that required them to deliver or issue a TATC only against presentation of a bill of lading. They had undertaken in the contract contained in the bill of lading that delivery should be against presentation of an original bill of lading and they should have ensured that they could discharge that obligation by an appropriate contract with Customs warehouse operators and Container Operators.
Was there a custom or usage of the ports in Chile that cargo could be delivered without presentation of a bill of lading?
It was also contended by Maersk and P&O that there was a custom at the ports in Chile to the effect that carriers delivered goods to a Customs warehouse without presentation of an original bill of lading and the warehouse then delivered without presentation. They relied on the evidence of Mr Parra and Mr Marlinarich.
I do not consider that their evidence established any such custom. I have referred at paragraph 106 to some of their evidence and the weight of their evidence. In my view there was clearly no custom of the ports of Chile that cargoes could be delivered to Customs warehouses in discharge of the carrier’s delivery obligations or could be delivered without presentation of a bill of lading. I have already referred to the evidence of Mr Sahurie, the ability of carriers to enter into agreements with Customs warehouse operators and Container Operators, the changes that have taken place in Chile and the practice of agents and container operators. I am therefore quite satisfied that there was no such custom or usage for which Maersk and P&O contended. It is not necessary therefore to consider the further submissions of the claimants that any such custom would have been unreasonable.
The Hamburg Rules
Chile incorporated the Hamburg Rules into its Code of Commerce in 1988. Article 1.7 of the Hamburg Rules provides:
“The bill of lading is a document which evidences a contract of carriage by sea and the taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the document. A provision in the document that the goods are to be delivered to the order of a named person, or to order, or to bearer, constitutes such an undertaking. ”
It was common ground that this was the basis of Article 977 of the Chilean Code of Commerce:
“The bill of lading is a document which establishes the existence of a contract of maritime transport and verifies that the carrier has taken charge of or has loaded the goods and has undertaken to deliver them against the presentation of that document to a determined person to his order or to the bearer”
Article 4 of the Hamburg Rules is entitled “period of responsibility”; it provides:
“1. The responsibility of the carrier for the goods under this [Convention] covers the period during which the carrier is in charge of the goods at the port of loading, during the carriage and at the port of discharge.
The equivalent provision of the Chilean Code of Commerce is Article 982 which provides:
“The liability of the carrier for the cargo comprises the period during which it is under his custody, be this ashore or during its actual transport”
Article 4 of the Hamburg Rules continues:
2. For the purposes of para 1. of the Article, the carrier is deemed to be in charge of the goods
……
(b) until the time he has delivered the goods:
(i) by handing over the goods to the consignee; or
…
(iii) by handing over the goods to an authority or other third party to whom, pursuant to the contract of carriage or with the law or with the usage of the particular trade applicable at the port of discharge, the goods must be handed over”.
There was some dispute between the experts over the precise translation of the Spanish text in the equivalent Article of the Chilean Commercial Code (Article 983) and in particular as to whether the Spanish text “ the goods must be handed over” should read “may be handed over”. The text is identical to the text of the Hamburg Rules in all material respects; I therefore consider it correct to use the official language version of the Article contained in the Hamburg Rules, even though Mr Sahurie considered that the translation “may be handed over” was the preferred translation.
Article 5 of the Hamburg Rules (Article 984 of the Chilean Code of Commerce) is entitled “basis of liability”; it provides that:
“1. The carrier is liable for loss resulting from loss of or damage to the goods, as well as from delay in delivery, if the occurrence took place while the goods were in his charge as defined in art.4., unless the carrier proves that he his servants or agents took all measures that could reasonably be required to avoid the occurrence or its consequences.
3. The person entitled to make a claim for the loss of the goods may treat the goods as lost if they have not been delivered as required by art. 4 within 60 consecutive days …..”
P&O and Maersk contended (supported by the evidence of Mr Tomasello) that under the Hamburg Rules, if the carrier was obliged to deliver to the Customs, that constituted due delivery under the contract. The claimants (supported by Mr Sahurie) contended that Article 4 did not stipulate what constituted good delivery, only when the responsibility for loss or damage ended, though Mr Sahurie accepted that, if the carrier was obliged to deliver to Customs, then Article 4.2(b) (iii) (Article 983(c) of the Chilean Code) would be satisfied for the purposes of establishing the period of custody.
For the reasons I have given I am satisfied that a carrier was not obliged to hand over the goods to Customs; he did not deliver them to Customs, but placed them with a Customs warehouse operator subject to the jurisdiction of Customs. He could enter into a contract with that operator that the goods should not be released without presentation of the bill of lading. Thus in my view the carrier could not rely on Article 4.2(c) (Article 983 (c) of the Chilean Code of Commerce).
If, however, I had concluded that the carrier was obliged to make a delivery to Customs, then I would have found it difficult to accept the distinction that the claimants sought to make between the end of the carrier’s period of responsibility and custody for the purposes of a claim for loss or damage of the goods and the carrier’s continuing responsibility to deliver only against presentation of a bill of lading. The purpose of Article 4.2 (b) (iii) was in my view accurately stated in a report of the UNCTAD secretariat entitled “The economic and commercial implications of the entry into force of the Hamburg Rules” (December 1987) at p 36:
“These provisions concern port authorities and other third parties to whom the goods must be handed over before shipment or after discharge in accordance with the laws or regulations of the loading or discharge ports. National laws or regulations frequently grant monopolies to State-owned or private warehouses or docks for handling and storage of goods, particularly in connection with Customs procedures. The policy of these provisions is that if the carrier is not free to chose such a facility, he should not be liable for damage to the goods caused by the facility. Article 4.2(b) (iii) states that he is not in charge of the goods in those circumstances”
Although it is not necessary for me to express a concluded view on this issue, it is difficult to see what proper distinction can be made on the basis of the policy of the Hamburg Rules between damage to the goods by a warehouse the carrier is forced to use to and misdelivery of the goods by the warehouse. The loss has occurred when the goods are not in the carrier’s custody as a result of the action of a person which the carrier was not free to chose.
There is one further issue. If contrary to the clear view I have formed, the delivery to the Customs warehouse was delivery to the Customs, then the claimants accepted that on the terms of the P&O bills of Lading that constituted due delivery under the contracts. This was because clause 20 (6) provided:
“If the carrier is obliged to hand over the goods into the custody of a Customs, port of other authority, such hand over shall constitute due delivery to the Merchant under the bill of lading”
The obligation under English law to deliver under the bills of lading
It has been made clear in decisions of the highest authority that a carrier must under the usual terms of a bill of lading deliver the goods only against presentation of an original bill of lading; the case most commonly cited is Sze Hai Tong Bank v Rambler Cycle Co [1959] AC 576. In The Houda [1994] 2 Lloyd’s Rep 541, Leggatt LJ expressed the position in this way:
“ Under a bill of lading contract a shipowner is obliged to deliver goods upon production of the original bill of lading. Delivery without production of the bill of lading constitutes a breach of contract even when made to the person entitled to possession… ”
There is no need to rehearse the importance to international commerce of this obligation under a bill of lading.
Furthermore the contract of carriage generally continues and the bill of lading remains effective, as set out in paragraphs 35 to 38 above, until the goods are delivered to the person entitled under the bill of lading.
The bills of lading contained express terms which Maersk and P&O contended modified that usual obligation. Maersk relied on the following provisions of their bills of lading:
The face of the bill of lading
“…. for delivery unto the Consignee mentioned herein or to his or their assigns, where the Carrier’s responsibilities shall in all cases and in all circumstances finally cease… In witness whereof the number of original bills of lading stated on this side, one of which being accomplished, the other(s) to be void.
Clause 17: METHODS AND ROUTES OF TRANSPORTATION
1.The carrier may at any time
(e): comply with any orders or recommendations given by any government or authority or …
2.Anything done or not done in accordance with this provision is deemed to be within the contractual carriage and shall not be a deviation”
P&O relied on the following provisions of their bills of lading (and clause 20(6) in respect of which I have set out the concession of the claimants at paragraph 119):
The face of the bill of lading
“…If the Carrier so requires, before he arranges delivery of the goods one Original bill of lading, duly endorsed, must be surrendered by the Merchant to the Carrier at the Port of Discharge or at some other location acceptable to the carrier ”
The bills of lading also contained provisions identical to clause 17 of the Maersk bills.
First it was contended that under the terms of the P&O bills of lading, the presentation of an original was only the carrier’s prerogative rather than his obligation, in view of the words “if he so requires”. I do not accept that contention. Clear language would be needed to discharge the carrier from his obligation to deliver in accordance with the bill of lading; this clause does not contain any such language.
Second, it was contended that clause 17.1(e) in the Maersk bill and the identical clause in the P&O bill entitled the carrier to comply with any government order; on the findings I have made in relation to the law of Chile, there was no such order.
In my view therefore there was no relevant qualification to the usual delivery obligation by reason of the clauses in the bill of lading.
Maersk and P&O next contended that there was an implied term of the bill of lading that entitled them to deliver without presentation of a bill of lading in circumstances where there was a reasonable explanation of its absence. They relied on a short passage in the judgment of Clarke J in The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266. Goods were delivered at Vyborg by the defendant carrier without seeking presentation of the bills of lading. The carrier contended that he was not liable because he had delivered the goods in accordance with the practice and custom of the port of Vyborg and he had delivered to the plaintiff’s agents. Clarke J held that the although the carrier was generally obliged to deliver only against presentation of an original bill of lading, there were circumstances where the carrier was entitled to deliver other than against presentation. After a review of the authorities, Clarke J concluded that there were two such circumstances – where there was a reasonable explanation for the non availability of the bill of lading and where the law or custom of the port required such delivery. It is convenient to deal subsequently with the position relating to the law and custom of the port of delivery. As regards a reasonable explanation for the absence of the bill of lading, Clarke J said at 274:
“In trades where it is difficult or impossible for bills of lading to arrive in the discharge port on time, the problem is met by including a contractual term requiring the master to deliver against a letter of indemnity or a bank guarantee. That is common place and indeed there was a provision to that effect here. The simple rule to which I referred does require some exceptions because the bill of lading might have been lost or stolen. In order to cater for that problem it is no doubt necessary to imply a term that the master must deliver cargo without production of an original bill of lading in circumstances where it is proved to his reasonable satisfaction both that the person seeking delivery of the goods is entitled to possession and what has become of the bills of lading. The precise nature of the exceptions will no doubt require further consideration on the future.”
In Motis Exports v Dkbs 1912 [1999] 1 Lloyd’s Rep 837, Rix J took a contrary view. He had to consider as a preliminary issue the liability of Maersk line for the loss of goods after discharge where forged bills of lading were used to obtain delivery orders for the goods at the port of discharge. One of the arguments made was that there was an exception to the rule that a shipowner must deliver against presentation of a bill of lading where the carrier was deceived without fault into parting with the goods; the carrier relied upon the passage in the judgment of Clarke J in The Sormovskiy 3068 which I have set out in paragraph 126. After referring to the Houda and noting that The Sormovskiy 3068 did not appear to have been cited to the Court of Appeal in that case, Rix J expressed the view that the exception which the carrier sought to derive from the The Sormovskiy 3068 did not exist; the remedy in circumstances where the original bill of lading could not be produced was to persuade the carrier to accept an indemnity or go to Court. In the Court of Appeal, the argument on this point was not pursued by the carrier [2000] 1 Lloyd’s Rep 211 at 213, para 7.
I agree with the views of Rix J. Furthermore if the carrier is not protected by a reasonable belief in the genuineness of the bill presented (as was held in Motis Exports), it is difficult to see how he can be protected in the circumstances suggested by Clarke J: see Carver on Bills of Lading, paragraph 6-005. Moreover the exception suggested by Clarke J was by way of implied term. But, in my view, no such implied term could ever be said to be necessary; on the contrary the right of the carrier to deliver where he had a reasonable explanation as to the absence of the bill and reasonable evidence of the entitlement of the person seeking delivery to delivery would undermine the security of the bill of lading. The position of the consignee and the shipowner can and should in the circumstances envisaged by Clarke J be protected by an indemnity or an application to court as is made clear in the judgments in the Court of Appeal in The Houda . There are occasions, for example in the short haul trades, where the bills usually do not reach the port of discharge until after the ship has discharged; the documents have usually pointed to the consignee being entitled to delivery. However, in my experience, in such circumstances, although there rarely is a problem, there have been occasions where insolvency has supervened in the contractual chain and banks have exercised their rights under the bills of lading. It is for that reason it has been the practice of P&I clubs to insist an indemnity always be provided where a bill of lading is not available even in the most plausible of circumstances and have generally excluded insurance cover for a carrier who delivers in such circumstances without obtaining an indemnity or court order.
Even if, contrary to my view there was such an exception, I do not consider it would avail the carriers in the present case. They received no explanation of the whereabouts of the original bills of lading and a copy of a bill of lading produced by Gold Crown’s Customs agent was not reasonable evidence of entitlement to possession. No one questioned whether the Customs agent had the original.
The obligation under the bills of lading and the law and custom at the port of discharge in Chile
Thus as a matter of English law, I am satisfied that the obligation in bailment and contract upon P&O and Maersk was only to deliver against presentation of an original bill of lading. However, these carriers relied on the distinction under Article 10 of the Rome Convention between the substance of that obligation and the manner and mode of its performance to which I referred at paragraph 64.
To the extent that the law of Chile contained provisions specifying the manner in which cargo in Chile had to be delivered, then in my view it must be correct to have regard to the law of Chile under Article 10. Thus, for example, under the law of Chile, as set out in paragraph 75, the original bills of lading had to be retained by the Customs agent. They could only therefore be presented to the carrier and had to be returned (marked if necessary to show delivery had been made); to that extent the obligations under the bill of lading are modified by the law of Chile.
A similar result to that to which I referred in paragraph 131 is reached on the basis of another part of the decision in The Sormovskiy 3068 relating to the law and custom at the port of discharge. Clarke J said at 275:
“If it were a requirement of the law of the place of performance that the cargo must be delivered to the [the Commercial Sea Port at Vyborg] as agent of the plaintiffs without presentation of an original bill of lading the defendants would in my judgment have performed their obligations under the contract of carriage. Any other conclusion would mean that the contract could not lawfully be performed, which could not have been intended by the parties.
Equally if there was a custom….However, custom in this context means custom in its strict sense… It would not however, in my judgment, be good performance of the defendants’ obligations under the contract if it were mere practice…”
I agree with the views of Clarke J; they seem to me to accord entirely with the authorities to which he refers and with the broader principle of Article 10 of the Rome Convention.
I accept that the obligation under the bills of lading in English law contemplated the bill being surrendered to the carrier and kept by him, but either under the principle in The Sormovskiy 3068 or under Article 10, I consider that the modification in the manner of the discharge of that obligation set out in paragraph 131 is permissible and is in no way inconsistent with the basic obligation under these bills of lading in English law to deliver against presentation of the bill of lading.
If under the law of Chile I had concluded that Maersk and P&O were under an obligation to deliver the cargo to a Customs warehouse without presentation of a bill of lading and that discharged their delivery obligations, that would have given rise to more difficult questions as to the scope of the principle in The Sormovskiy 3068 and of Article 10. It was contended by the claimants that the exception in The Sormovskiy 3068 did not apply because the basis of such an exception was the intention of the parties and such an exception could not be implied because of the terms of the bills of lading. Article 10 did not assist Maersk and P&O as the substance of the obligation was the obligation to deliver against presentation of the bill of lading. Furthermore the claimants did not know of the law of Chile and therefore Maersk and P&O could not rely on the provisions of that law; there was no supervening illegality. Maersk and P&O contended that the exception in The Sormovskiy 3068 was of wide application and consistent with cases such as Petrocochino v Bott (1874) LR 9CP 355 and The Asiatic Prince 108 Fed Rep 287 (1901, CA, 2nd Cir). It was consistent with the principle, set out for example by Staughton J in Libyan Arab Bank v Bankers Trust [1989] QB 728 that performance was excused if the act required was necessarily unlawful in the place of performance and therefore performance was discharged by illegality. In view of the conclusion to which I have come on the law of Chile, it is not necessary for me to lengthen this judgment by a consideration of these conflicting arguments.
A collateral contract?
The claimants, had I reached a different conclusion on the law of Chile would have sought to argue that in the case of the Maersk bills (where there was an express obligation to deliver against presentation of the bill of lading) that there was a collateral warranty that performance in that way could be carried out lawfully in Chile: they relied on Walton (Grain and Sipping) Ltd v British Italian Trading Co [1959] 1 Lloyd’s Rep 223 and Pagnan v Tradax [1987] 2 All ER 565. In view of the conclusions to which I have come, it is not necessary for me to decide this still further issue. I am, however, very doubtful whether such a claim could have succeeded; I am satisfied that Mr Balani was not unfamiliar with the position in Chile. It was accepted that such a claim could not succeed against P&O because of the express provision in clause 20(6) of the P&O bill of lading (see paragraph 119). The claimants had a further alternative submission not only against Maersk and also P&O in the event that I had found that although the carriers had to deliver to Customs they were not precluded from demanding presentation of a bill of lading; this faced similar difficulties and the fact that it had not been pleaded. It is again unnecessary for me to deal with this issue on the findings I have made.
Issue 3: The exceptions in the bill of lading
Although the terms of the Maersk and P&O bills of lading were similar (as is to be expected as each company operates a liner service) and both bills could be used either as port to port bill or combined transport bill, it is necessary to consider them separately.
The terms of the Maersk bills
Maersk relied first on clause 5:
“CARRIER’S RESPONSIBILITY
The carrier undertakes responsibility from the place of receipt if named herein or from the port of loading to the port of discharge or the place of delivery if named herein.
3. Carriage to and from Countries other than the USA
b. Where the carriage called for commences at the port of loading and finishes at the port of discharge, the Carrier shall have no liability whatsoever for any loss or damage to the goods while in its actual or constructive possession before loading or after discharge over the ship’s rail, or if applicable over the ship’s ramp, however caused.”
The claimants first submitted that the clause did not in any event apply as the carriage was not port to port. On the face of the bill of lading, the spaces for port of loading and for place of receipt were each filled in as “Hong Kong” and the spaces for port of discharge and place of delivery were also filled in. The spaces for place of receipt and place of delivery were marked “Only applicable when the document used as a combined transport bill”. It would seem therefore that this was not carriage that finished within the terms of clause 5.3.b at the port of discharge; it finished only at the place of delivery. But it is not necessary to consider this at length, as I am satisfied that in any event that the clause is inapplicable on the basis of the claimants’ second submission relying on Motis Exports v Dkbs 1912.
In Motis Exports v Dkbs. 1912, Rix J and the Court of Appeal held that clause 5.3.b did not cover misdelivery without presentation of a bill of lading. Stuart Smith LJ said at paragraph 20:
“Clause 5(3)(b) is not apt on its natural meaning to cover delivery by the carrier or his agent, albeit the delivery was obtained by fraud”
Mance LJ said at paragraph 5
“The natural subject matter of clause 5(3)(b) is consists in loss or damage caused to the goods while in the carrier’s custody, but not deliberate delivery up of the goods, whether without any bill of lading or against a forged and therefore nul document believed to be a bill of lading. ”
Maersk argued that the facts of the present case were different; Maersk had not handed over the goods to the wrong person, but the wrong person had obtained the goods without the consent of the carrier as in the case of theft. In the case of theft, it was accepted in Motis Exports that the clause would apply (see also The Ines [1995] 2 Lloyd’s Rep 144). In my view this was not a case of theft; it was a simple case of misdelivery without presentation of a bill of lading and to persons, Gold Crown, who were not in any event entitled. Maersk were under an obligation to deliver to the person who presented a bill of lading; this they did not do.
Maersk next relied on the Hague-Visby Rules. It was accepted by the Claimants that the Hague-Visby Rules applied by reason of clause 5.3.a. Maersk contended that the Hague-Visby Rules exceptions in Article IV Rule 2 (g) and (q) provided them with a defence. Assuming that these exceptions applied to misdelivery (though the claimants contended that they only applied to physical loss and damage), they do not assist Maersk. There was no restraint of princes (on the law of Chile as I have found it to be) and the loss did not occur without their fault or privity (for the reasons given in paragraphs 148 to 149 in relation to negligence). Maersk did not seek to rely on the package limitation as it was greater than the amount claimed.
The terms of the P&O bills
P&O relied on clause 5 of their bills:
“5. CARRIER’S RESPONSIBILITY
Port to Port Shipment
….
The carrier shall be under no liability whatsoever for loss or damage to the Goods, howsoever occurring, if such loss or damage arises prior to loading onto or subsequent to discharge from the vessel. Nothwithstanding the above, in case and to the extent that any applicable law provides for any additional period of responsibility, the carrier shall be entitled to every … limitation and liberty in the Hague Rules, notwithstanding that the loss or damage did not occur at sea”
It was the claimant’s case that clause 5 did not apply as the carriage under the bills of lading was not port to port. Under the terms of the definition clause, a bill of lading was port to port if it was not combined transport; a bill was a combined transport bill if the “place of receipt” and/or “the place of delivery” were so indicated on the face of the bill in the relevant spaces. On face of the bills the space for “place of receipt” was filled in “Hong Kong Cy”, and the “place of delivery” filled in “Valparaiso”. The space for the port of loading was filled in as “Hong Kong” and the space for the port of discharge “Valparaiso”. The spaces for “place of delivery” and “place of discharge” were marked “applicable only when this document is used as a combined transport bill of lading”. The claimants therefore contended that, as the spaces had been filled in, clause 5 did not apply. P&O contended that even though the spaces had been filled in, this did not make the carriage combined transport as it was necessary for the place of receipt and the place of delivery to be different to the places loading and discharge. I do not accept P&O’s argument. There may be many reasons why the combined transport provisions were chosen even if the places were the same; as the provision in clause 6 dealing with combined transport makes clear (and as is emphasised in P&O’s guide) this makes the carrier liable throughout the carriage; the combined transport provisions also extends the period of responsibility beyond discharge from the vessel to storage at the place of delivery until collection. Thus there are sensible reasons why the parties might have filled the spaces in; they did so in this case and in my view, these bills of lading were not port to port. P&O also contended that even if the carriage was combined transport, clause 5(b) applied by reason of clause 6(3)(b); I cannot accept that argument, on the terms of the clause, given the way the face of the bill of lading was completed .
But even if clause 5(b) applied, I do not consider it would assist P&O. The clause is in most respects similar to clause 5.3.b in the Maersk bill; the difference between the phraseology is in my view immaterial. However, the P&O bill contains clause 7(5)(b) which provides:
“7. SUNDRY LIABILITY PROVISIONS
(5) Scope of application
(b) The rights, defences, limitations and liberties of whatsoever nature provided for in this Bill of Lading shall apply in any action against the carrier for loss or damage or delay, howsoever occurring and whether the action be founded in contract or in tort and even if the loss or damage or delay arose as a result of unseaworthiness, negligence or fundamental breach of contract.”
P&O relied on the judgment of Shellier JA (with whom Cripps JA agreed) in the New South Wales Court of Appeal in The Antwerpen [1994] 1 Lloyd’s Rep 213. In that case, containers were stolen from the container port with the connivance of employees of the terminal operator. Shellier JA held that, although the loss was not within the terms of a clause that exempted the carrier from liability for loss or damage howsoever caused after discharge, it was within a clause similar to clause 7(5)(b) in the P&O bills which applied the exemption clause to fundamental breach of contract. This was because connivance in the theft by the employees of the container operator was a fundamental breach of contract. Handley JA dissented on the basis that the clauses had sufficient scope without applying them to deliberate conversion. This is entirely consistent with the decisions in The Ines and Motis Exports. I am satisfied that the wording of the clause can be given sufficient content by not applying it to delivery without presentation of a bill of lading; it deals with loss or damage and not delivery without presentation of a bill of lading.
P&O also relied on clause 6(1)(a) which excluded their liability in the case of
“ (vii) any cause or event which the carrier could not avoid and the consequence of wherof he could not prevent by the exercise of reasonable diligence.
(ix) compliance with the instructions of any Person entitled to give them ”
Assuming that the clause applies, however, these clauses do not assist P&O, as P&O were not complying with instructions of a person entitled to give them (on the findings I have made in relation to the law of Chile) and the loss could have been avoided by the exercise of due diligence (for the reasons given in my findings in relation to negligence at paragraphs 148 to149). The issue raised on the validity of the special monetary limit in clause 6(1)(c) therefore does not arise.
P&O also relied on the Hague-Visby and Hague Rules exceptions. For the reasons given in respect of Maersk, I do not consider they assist P&O. They also relied on clause 7(2) which applied a limit of £100 sterling per package or unit if the Hague Rules were applicable other than by national law. There are a number of reasons why this does not assist P&O; the clause applying the Hague Rules only applied to port to port bills and in any event the applicable limit would be the Hague-Visby limits which do not assist P&O.
Issue 4: The claim in negligence
Both P&O and Maersk contended that there could be no claim in conversion or negligence because they had delivered the goods to the custody of the Customs and that was not an act inconsistent with the title of the claimants; furthermore it was the Customs service or the Customs warehouse operator who had released the goods and that was not an act attributable to them. Both of these contentions were based on their case as to the law of Chile. In view of the findings I have made, neither of these arguments can succeed. They had not delivered the goods to the Customs and they could and should have ensured that the Customs warehouse only delivered against presentation of an original bill of lading or that the TATC form was only issued after presentation of an original bill of lading.
Under the law of Chile as I have found it to be, it was open to a carrier to contract with a Customs warehouse operator on terms (or give instructions) that an original bill of lading was to be presented prior to the release of the cargo; similarly they could have instructed their port agents to demand sight of an original bill of lading before issuing the TATC form as Container Operators. P&O and Maersk did neither. In my view they were both clearly negligent in these respects, particularly as regards instructions in respect of issuing TATCs only after presentation of an original bill of lading; it was not suggested that as regards negligence the law of Chile was different to the law of this jurisdiction. Neither shipping line appears to have taken up to date advice on this important issue; they seem to have assumed that the position remained as it had in earlier years and not tested the position. There clearly were carriers who did give such instructions or enter into such contracts and this was clearly the prudent practice. If contracts of the kind described had been made or instructions given, I am satisfied that on a balance of probabilities these losses would not have occurred; in particular I am satisfied that if Maersk had instructed AJ Broom and P&O had instructed SAAM only to issue TATC forms against presentation of original bills of lading (or copies certified by a bank), then the goods would not have been delivered to Gold Crown and the losses would not have occurred. It is clear that there was no impediment to Maersk and P&O giving such instructions to their agents in their capacity as Container Operators; ordinary prudence and proper commercial practice made it obvious that they should have done so.
Conclusion
I therefore hold that the Claimants succeed in their claims for $134,807.40 against Maersk and for $95,147.20 against P&O.
Primetrade AG v Ythan Ltd
[2005] EWHC 2399 (Comm) [2006] 1 Lloyd’s Rep 457, [2005] EWHC 2399 (Comm), [2006] 1 All ER (Comm) 157, [2005] 2 CLC 911, [2006] 1 All ER 367
Aikens J
Discussion
The 1996 Act changed the law on how issues of an arbitrator’s jurisdiction should be dealt with. For the first time in English law, arbitrators were given a statutory power[68] to investigate and determine their own jurisdiction. A party who challenges the jurisdiction of the tribunal has two options. First, he can take part in the arbitration, in which case he must normally challenge the jurisdiction before the arbitrators. (Although the 1996 Act provides to the court to determine an initial issue as to the substantive jurisdiction of the parties,[69] it is clear that, generally, such disputes should be determined in the first place by the arbitral tribunal). Alternatively, a party may decline to take part in the arbitration proceedings and then challenge the jurisdiction of the arbitrators under section 72 of the 1996 Act.
In the Report on the Arbitration Bill, which was produced by the Departmental Advisory Committee on Arbitration Law,[70] it deals shortly[71] with the intention behind clause 73 of the Bill, which became section 73 in the 1996 Act. The Report said clause 73 is to deal with:
“Recalcitrant parties or those who have had an award made against them [who] often seek to delay proceedings or to avoid honouring an award by raising points on jurisdiction etc which when they have been saving up for this purpose or which they could and should have discovered and raised at an earlier stage.”
The Report says that the clause is based on Article 4 of the Model Law, although it is not in the same terms. The Report continues:
“In particular, unlike the Model Law, we have required a party to arbitration proceedings who has taken part or continues to take part without raising the objection in due time, to show that at that stage he neither know nor could with reasonable diligence have discovered the grounds for his objection….”
So the Report does not assist in deciding whether, in section 73, the word “objection” and the phrase “that objection” means simply an objection to jurisdiction generally, or a particular argument or ground for objection.
There is guidance, of course, in the decision of Colman J in the Zestafoni case[72] to which I have referred. There is further indirect assistance in the judgment of Gross J in the Electrosteel case, where the appellant, Electrosteel, wished to introduce new evidence on an appeal under section 67. In considering whether he should admit such evidence, Gross J described the decision of an arbitrator on jurisdiction as “a provisional ruling only”, which could be challenged in an appeal, as of right, under section 67. He said it was clear, from a number of cases at first instance, that such an appeal took the form of a re-hearing of the issue and was not simply a review of the arbitrator’s decision to see whether he was entitled to make his decision.[73] Gross J pointed out that there is no statutory restriction on new evidence being adduced on an appeal under section 67 and noted that in the Kalmneft case, Colman J had specifically held that additional evidence was admissible.[74] However, Gross J permitted the new evidence, but was careful not to encourage the production of new evidence on appeals under section 67.[75]
With respect to Gross J, I would not characterise a decision of an arbitrator on jurisdiction (under section 30 of the 1996 Act) as a “provisional determination”. It is a final determination, unless appealed. However, I acknowledge that the arbitrator’s determination can be appealed as of right under section 67.
It is clear that the intention behind section 73 is to ensure that a party objecting to jurisdiction, who has decided to take part in the arbitral proceedings, should bring forward his objections in those proceedings before the arbitrators. He should not hold them in reserve for a challenge to jurisdiction in the court. I agree with Colman J that this intention reflects a principle of “openness and fair dealing”[76] between parties who may, or may not, be bound by an arbitration clause. I also agree with Colman J, therefore, that to fulfil this intention and to accord with that principle, the words “any objection” and “that objection” in section 73 must mean “any ground of objection” and “that ground of objection”.
But what does that phrase cover? I think that it is wrong to be prescriptive or try to lay down precise limits in the abstract. It is usually easy to recognise in particular cases whether a party is attempting to raise a new ground of objection to jurisdiction on an appeal. It was obvious in the National Basketball Association case and the Zestafoni case. Take this case: in my view Primetrade raised two “grounds of objection” to the arbitrators’ jurisdiction. They are: that Primetrade was not a holder of the bills of lading at any relevant time; and that it did not make a claim against the Owners; therefore it is not bound by the arbitration clause.
Primetrade raises the same two grounds of objection on this appeal. I accept that it raises different and broader arguments on the first ground. But in my view all those arguments are within the same “ground of objection” to the jurisdiction of the arbitrators. The argument that no right of suit is transferred to Primetrade even if it became a “holder” of the bills under section 5(2)(c) is, in my view, within that first ground.
That conclusion does leave two other points for consideration. The first is: to what extent is a party entitled to adduce new evidence in support of a new or different argument within an existing “ground of objection”. I recognise that there is no statutory limitation on adducing new evidence; nor is there any restriction in the CPR that governs this issue. But that cannot stop the court exercising control over what evidence to admit on an appeal under section 67. Appeals under that section are, after all, re-hearings, not a completely fresh start as if there had been no previous challenge to the jurisdiction of the arbitral tribunal. In my view, if the principle underlying section 73 is one of openness and fair dealing between the two parties involved, then this requires that, so far as possible, a party must bring forward all its evidence at the hearing before the arbitrators. If a party wishes to adduce new evidence on an appeal under section 67, then it must give notice to the other side. If it is opposed, it must seek permission from the court at an appropriate interlocutory hearing. The court must be able to control the procedure of the re – hearing under section 67. The court may decide not to permit new evidence to be adduced if that would result in substantial prejudice to the other side which cannot fairly be dealt with either in costs or, if appropriate, an adjournment.
In this case Mr Bryan has not asserted that the Owners are prejudiced by the new evidence that Mr Dunning wishes to introduce. I will therefore admit it.
The other point to mention is the arbitrators’ comments at paragraph 87 of their Reasons, where they say that they would not have permitted Primetrade to put in evidence or to argue any points on whether the underwriters became the holders of the bills of lading. They were entitled to take that view. But, in my opinion, their conclusion would not stop me from permitting Primetrade to argue that point now, provided it is either within the “grounds of objection” raised before the arbitrators, as I have held, or the conditions in the proviso to section 73(1) can be met.
E. Issue Two: Was Primetrade the holder of the bills of lading at the relevant time? If so, did it have vested in it rights of suit under the bills of lading, pursuant to section 2(1) of COGSA?
Is section 5(2)(b) or 5(2)(c) the relevant section for the purpose of deciding whether Primetrade was “holder” of the bills of lading?
Primetrade could only become a “holder” of the bills of lading if the facts fell within either section 5(2)(b) or section 5(2)(c) of COGSA. So the first question is whether section 5(2)(c) is relevant on the facts of this case, that is, when the cargo was totally lost in the course of the carrier undertaking the contract of carriage from Venezuela to China. I set out again the relevant part of the wording of section 5(2)(c):
“a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph…(b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates”
I also note the provision in section 5(4).[77] There are two points that need discussion on this wording. First, what is meant by “transaction”. Secondly, what situations are covered by the phrase: “at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates”.
In my view the word “transaction” refers to the physical process by which the bill is transferred from one person to another. This is also the view of Carver on Bills of Lading[78] and also Benjamin’s Sale of Goods.[79] It appeared to be Lord Hobhouse’s understanding too, given the way he refers to a transfer of a bill of lading in paragraph 30 of his speech in the “Berge Sisar”.[80]
The question of the scope of the phrase “at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates” is less easy. Mr Bryan submits that the phrase deals only with the case of “spent” bills of lading, ie. bills which cover goods that have been delivered to the person entitled to delivery under the bills.[81] Mr Bryan submits that the wording was not intended to deal with the situation where the goods never arrive at the destination under the contract of carriage because they have been destroyed or totally lost. But Mr Dunning points out that in the Explanatory Notes to the draft Carriage of Goods by Sea Bill which is annexed to the Law Commission Report, it gives an example of what is intended to be covered by the wording of clause 2(2) which became section 2(2).[82] The note says: “The words “possession of the bill no longer gives a right…to possession of the goods” cover, inter alia, the case where delivery of the goods has been made and also the case where the goods are destroyed”.
Mr Dunning also refers to a passage in Carver[83] where the authors discuss the ambit of the same wording in section 2(2). The authors deal with an example where the cargo has been destroyed in the course of the contract of carriage. They point out that the destruction could be the result of either a breach of contract by the carrier or a frustrating event or an excepted peril. With respect to the authors, the reasoning of the last part of the paragraph is a little difficult to follow. However, I agree with their view that there cannot be a right (against the carrier) to possession of the goods if the goods no longer exist.
It is clear from the wording of section 5(4) of the Act that the draftsman had well in mind the possibility that a bill of lading could be issued and then the goods covered by it “ceased to exist”. The Explanatory Notes to the Bill state that this subsection “makes it clear that rights of suit in relation to any document can exist[84] in respect of goods…carried on a vessel which sinks”. Therefore there is no reason to confine the circumstances covered by the words “possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates”. How the Act operates depends on its wording. That is emphasised by the particular reference to sections 2(2) and 4 in section 5(4).
In my view, valuable assistance on the ambit of the words in section 5(2)(c) “at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods” is gained from the analysis of Lord Hobhouse in his speech in the “Berge Sisar”. In paragraph 31 of his opinion, Lord Hobhouse notes that the 1992 Act is concerned solely with contractual obligations created in a bill of lading in relation to the carriage and delivery up of the goods. He emphasises that the Act is not dealing with proprietary rights of anyone who becomes a holder of the bill of lading.[85] This distinction is important. It means that when a ship sinks and the cargo carried under a bill of lading is lost permanently, the question to ask in connection with the wording in section 5(2)(c) under consideration is: does possession of the bill of lading any longer give a contractual right (as against the carrier) to possession of the goods to which the bill relates? Like the authors of Carver, my view is that there cannot be a contractual right (as against the carrier) to possession of goods that no longer exist (for practical purposes) because they are at the bottom of the sea. If the reason for the loss is a breach of contract by the carrier, there may at that stage spring up a contractual right to damages, but whether there is and who can exercise that right are different questions which I need not discuss here.
So I conclude that the phrase in section 5(2)(c) “at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates” do apply to a situation where the goods have been lost forever, as in this case. That does not stop the Act operating to transfer rights of suit or liabilities. Whether that occurs depends on whether the conditions set out in the Act, particularly those in sections 5(2), 2(2) and 3(1) are fulfilled.
Did Primetrade become “holder” of the bills of lading within section 5(2)(c)?
Mr Dunning’s argument based on section 5(2)(c) is that when UBS sent the bills of lading to Marsh, then, if UBS ceased to be the “holder”, Marsh took the bills as agent for Primetrade, but Primetrade did not thereby become “holder” within section 5(2)(c). The reason for this, Mr Dunning says, is that the relevant “transaction” is that of passing the bills from UBS to Marsh. He says that this “transaction” would not have been effected at all at a time when possession of the bills would have given Primetrade a right (as against the carrier) to possession of the goods to which the bills relate. Alternatively, Mr Dunning says that if Primetrade did become the holder under section 5(2)(c), it did not have any rights of suit transferred to it under section 2(1), because the facts in this case do not fall within either proviso to section 2(2).
Mr Bryan submitted, in his written submissions following the oral hearing, that if section 5(2)(c) is relevant, then the appropriate “transaction” to be considered is the transfer of the bills to Primetrade upon UBS paying Orinoco, pursuant to the sale contract between Orinoco and Primetrade. Primetrade would have become the “holder” of the bills within paragraph (b) of section 5(2) had not that transaction been effected (by payment to Orinoco) at a time (22 March 2004) when possession of the bills no longer gave a right (as against the carrier) to possession of the goods to which the bills relate. Therefore Primetrade became the “holder” within paragraph (c) of section 5(2).
I do not accept Mr Bryan’s analysis. There are two “transactions” to be considered. The first is when UBS had the bills “transferred” to it (upon payment to Orinoco). Assuming that section 5(2)(c) applies to the situation where the goods represented by the bills of lading have been totally lost, then upon payment to Orinoco, UBS would become the holder of the bills under section 5(2)(c). This is because UBS would have become holders of the bills under section 5(2)(b) if the “transaction” (ie. the transfer of the bearer bills to UBS upon payment to Orinoco) had taken place before the ship and cargo was lost. The “transaction” that actually took place did so pursuant to the Orinoco/Primetrade sale contract and the Primetrade/UBS MCA, all of which had been in place before the loss of the vessel.
The second relevant “transaction” is that when UBS sent on the bills to Marsh. First, at this point I will deal with Mr Dunning’s original argument, put forward at the oral hearing before me, on the assumption that section 5(2)(b) applied in this case. The argument was that Primetrade did not become the holder of the bills of lading when they were in the hands of Marsh, because UBS still retained an interest in them as assignee of Primetrade’s insurance claims, under the Pledge and Assignment document.
I would reject this argument. Once UBS had paid Orinoco on Primetrade’s instructions on 22 March 2004, Primetrade became the owner of the bills. This is the view of Av Lombardini set out in his report to the arbitrators.[86] Primetrade’s Swiss law expert, Mr Ziegler, expressed the contrary opinion, ie. that UBS became the owner of the bills of lading once it had paid Orinoco,[87] but I do not accept his view. It does not seem to take account of the limited capacity in which UBS had possession of the bills of lading, ie. only as pledgee. Of course the fact that Primetrade is the owner of the bills does not stop UBS being the holder of the bills for the purposes of section 5(2) of COGSA. In my opinion it is clearly intended that a person who had only a “special interest” in bills of lading, such as a pledgee, and who did not own them (or the goods which they represent), can be holder of the bills of lading for the purposes of section 5(2). In that way a person that has only a limited interest in the bills of lading can have contractual rights of suit transferred to him under section 2(1).[88] At the time UBS paid Orinoco, UBS had actual possession of the bills and it had the right to possess them pursuant to the pledge it was then exercising. So at that stage UBS was the “holder” of the bills.
Mr Dunning accepts now that when UBS parted with the bills by sending them to Marsh, it lost its pledge over the bills. But he submits that UBS remained the holder of the bills, despite the fact that it no longer had physical possession of them. The only basis on which UBS could remain the holder of the bills is if Marsh received them as agent for UBS and UBS had a right to possession of the bills and so could demand them back for some reason. Mr Ziegler suggests that is the position, but I do not accept it is so.[89] UBS had an assignment only of the “insurance claim” under the Pledge of Goods and Assignment document. UBS understood that to mean an assignment of the proceeds of the insurance claim. Primetrade also understood that UBS only had an assignment of the insurance claims and not a general assignment of the benefit of the bills of lading.[90] UBS notified Marsh that it had an assignment of the insurance proceeds.[91] But it was Primetrade who had agreed the compromise with underwriters so that they would pay out on the insurance. And it was Primetrade who had agreed with underwriters that the shipping documents, including the bills of lading, would be handed over by UBS to the underwriters. Primetrade instructed UBS to pass them to Marsh and Primetrade instructed Marsh to pass the documents on to underwriters. Therefore, once UBS had lost its pledge over the bills, it is clear, on the proper construction of the security documents and both UBS’ and Primetrade’s understanding of the facts, that the only party that was entitled to possession of the bills must have been Primetrade. When Marsh got the bills from UBS, it held them on behalf of Primetrade for the purpose of enabling Primetrade to fulfil its part of the compromise agreement with underwriters.
I appreciate that the proceeds of the insurance claim were to go to Primetrade’s account at UBS. But that would be in fulfilment of the terms of the assignment of the insurance claim in favour of UBS.
Having dealt with that argument, I must now address the question of whether, when the bills of lading were transferred by UBS to Marsh (acting as agent for Primetrade), Primetrade became the “holder” of the bills of lading within section 5(2)(c). Mr Dunning submitted that the “transaction” of UBS sending the bills of lading to Marsh was not one as a result of which Primetrade would have become the “holder” under section 5(2)(b) if the transaction had occurred before the goods were lost when the vessel sank.
I have concluded that Mr Dunning’s argument is correct. If Primetrade is regarded as having possession of the bills of lading when they were sent to Marsh by UBS on 22 March 2004, then Primetrade had possession of the bills of lading “as a result of” that action – or “transaction”, to use the word in section 5(2)(c). But that transaction was performed on Primetrade’s instructions so that Marsh could pass on the bills of lading to the underwriters so that they could fulfil their obligation under the actual or proposed settlement agreement with Primetrade and pay about US$800,000 on Primetrade’s insurance claim. Such a “transaction” was not one falling within paragraph (b) of section 5(2). This is because the “transaction” of the bills from UBS to Marsh has nothing to do with the normal course of trading a bearer bill of lading, such as these two bills of lading. The transaction was made solely to enable Primetrade to collect from the underwriters once the casualty had taken place and the insurance settlement had been made. Without those events, Primetrade would never have had possession of the bills (through the insurance broker Marsh), because they would have remained in UBS’s possession (actual or constructive) until the purchasers from Primetrade had paid for them under the letters of credit that had been established in Primetrade’s favour.
Therefore, in my view, Primetrade would not have become a “holder” of the bills of lading “by virtue of” such a transaction had it occurred at a time when possession of the bills gave a right (as against the carrier) to possession of the goods to which the bills relate.
If I am wrong about that, Mr Dunning has a further argument, based on section 2(2). For convenience I will set out the relevant provisions again:
“Section 2.
(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill –
(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill;”
Mr Dunning’s argument proceeds on the basis that: (i) Primetrade became the lawful holder of the bills of lading upon UBS passing them to Marsh; and (ii) when Primetrade became the lawful holder of the bills, possession of the bills no longer gave Primetrade a contractual right (as against the carrier) to possession of the cargo to which the bills relate. In that situation, Mr Dunning says that Primetrade did not become the holder of the bills “by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a [contractual] right to possession ceased to attach to possession of the bills”: (section 2(2)(a)). This is because, he submits, Primetrade only became “holder”of the bills of lading by virtue of the transaction when UBS sent them to Marsh. And that transaction was effected in pursuance of a “contractual or other arrangement” that was made after the time when a right to possession of the cargo (as against the carrier) ceased to attach to possession of the bills. Once again, the relevant “contractual or other arrangement” was the agreement between Primetrade and the underwriters that they would make a compromise payment on the insurance.
Mr Dunning points out that in Carver, the authors say[92] that “…the words “contractual or other arrangements” in section 2(2) refer to the reason or cause for the transfer”. I agree with that interpretation of those words. So, I have to ask: what was the “reason or cause” for the transfer of the bills of lading from UBS to Marsh, as agents for Primetrade? The answer is, in my opinion, because Primetrade were prepared to agree with the underwriters that they should make an “ex gratia” payment in respect of the loss of the cargo. Ms Deckers of Marsh had written to Mr Hertzig of Primetrade on 19 March informing him that the underwriters were prepared to settle on an “ex gratia” basis. It was following that letter that Mr Roger, of Primetrade, instructed UBS to pay Orinoco and to send the bills of lading to Marsh. Although there was some wrangling between Primetrade and underwriters on the freight issue on 22 March, in my view it is clear from the terms of Primetrade’s instructions to UBS that the reason for the bills going to Marsh was because it was contemplated underwriters would pay under a compromise agreement with Primetrade. This “contractual or other arrangement” was made long after the vessel and cargo were lost.
Whilst I accept that it could be argued that the compromise agreement between Primetrade and underwriters and the transfer of the bills to Marsh arose out of the open cargo cover that existed before the cargo was lost, in my view the immediate reason and proximate cause of the transfer of the bills to Marsh was the actual or proposed compromise agreement itself. I note that Mr Bryan is prepared to accept that if section 5(2)(c) and section 2(2)(a) apply at all, then the cargo insurers received the bills as a result of the settlement agreement between Primetrade and underwriters. And he accepts also (if my analysis of the scope of the wording of these sections is correct), that the settlement agreement is not a “contractual or other arrangement made before the time when such a right to possession ceased to attach to possession of the bill”. If that is so, then it seems to me that the same reasoning must apply when Marsh got the bills, because they were sent to Marsh for onward transmission to the underwriters in furtherance of the same agreement.
If this conclusion is correct, then two things follow. First, no rights of suit can be transferred to Primetrade under section 2(1) of COGSA. That is because the requirements set out in section 2(2)(a) have not been fulfilled. Secondly, because Primetrade never obtained any right of suit, it could not transfer it on to the underwriters at any time.
If I am wrong that section 5(2)(c) is the relevant paragraph, then for completeness’ sake, I should comment briefly on Mr Dunning’s further argument, (advanced on the assumption that section 5(2)(b) is the relevant paragraph), ie. that the underwriters became the “holders” of the bills of lading once they got possession of them on about 23 March 2004. This must assume that Primetrade had been the “holder” pursuant to section 5(2)(b) from the time the bills reached Marsh.
Assuming section 5(2)(b) applies, it seems to me that the underwriters must be in an analogous position to a bank that receives bills of lading as part of shipping documents for which payment is to be made pursuant to sale contract (say FOB or CIF). So long as payment is not made, the bank will normally hold the shipping documents to the order of the seller. The underwriters were in the same position here. Until they paid the claim, they must hold the bills to the order of Primetrade. This conclusion is consistent with the timing of when underwriters will be subrogated to the rights of the assured. That occurs at the point when the underwriters have paid on the insurance; it does not occur when the assured forwards the documents in support of its claim, or even when the underwriters agree to pay on the claim.
That leaves just two further possible points on Issue Two. The assumptions would be that: (a) only section 5(2)(b) is the relevant section; (b) Primetrade had become the “holder” of the bills when they were sent to Marsh and (c) the underwriters did not become the “holders” when they got possession of the bills. The remaining questions are: (i) would underwriters have become “holders” upon paying the insurance claim to Marsh for transmission to Primetrade on about 1 April 2004 and if they did, (ii) what is the consequence? But I am going to note the issues without giving answers as, on my decisions so far, they are too hypothetical to need answering.
Conclusion on the “holder of the bills of lading” issue.
I have concluded that: (1) on the facts of this case, the relevant section of the COGSA for dealing with whether Primetrade became a “holder” of the bills on 22 March 2004 is section 5(2)(c). (2) Under that section, Primetrade did not become the “holder” of the bills of lading when the bills were transferred from UBS to Marsh. Therefore (3) as Primetrade was not the “holder” of the bills of lading, no rights of suit could be transferred to it under section 2(1)(a). Alternatively, (4) if Primetrade did become the “holder” under section 5(2)(c), then no rights of suit were transferred to it pursuant to section 2(2)(a). (5) It follows that Primetrade could not pass on any rights of suit to the underwriters at any stage.
Mr Dunning and Mr Bryan agree that it is clear from the terms of section 3(1) of COGSA that a person can only become subject to liabilities under a bill of lading by virtue of that section if rights of suit are vested in him by virtue of section 2(1). Therefore, as I have held that no rights of suit passed to Primetrade, the question of whether or not Primetrade made a claim under the contract of carriage against the carrier in respect of the cargo does not arise. But as I might be wrong on the holder/rights of suit point, I will go on to consider the next question.
F. Did Primetrade make a claim against the Owners within section 3(1)(b) of COGSA?
Any discussion about the proper interpretation of the scope and effect of section 3(1)(b) of COGSA must begin with Lord Hobhouse’s speech in the “Berge Sisar”.[93] In that case the House of Lords was concerned with two issues. First, whether buyers of an oil cargo, who were endorsees of bills of lading under which the cargo had been carried, had demanded delivery of the cargo from the carrier, so that the shipowner/carrier could bring proceedings against them for corrosion damage to the vessel, pursuant to section 3(1)(a) of COGSA. Secondly, whether those buyers would remain liable to suit under the bill of lading contracts under section 3(1), despite the fact that they had, in turn, endorsed the bills of lading over to third party purchasers, thus transferring to the latter a right of suit against the carriers, pursuant to section 2(1) of COGSA. The House of Lords held, on the facts, that the buyers had not demanded delivery within the terms of section 3(1)(a). They also decided that an endorsee of a bill of lading ceased to be liable under the contract of carriage pursuant to section 3(1) when he endorsed the bill over to another and so transferred the right of suit under section 2(1).
In what I would respectfully describe as a penetrating and magisterial speech, Lord Hobhouse first analysed the genesis of the 1992 Act, in particular the problems under the Bills of Lading Act 1855, which gave rise to the need for reform. He then commented on the general structure of the 1992 Act.
At paragraph 32 of his speech, he begins his analysis of section 3(1). He points out: first, that the intention of the draftsman was to ensure the mutuality of the contractual relationship between the carrier and the shipper and then the endorsee of the bills of lading. Therefore, a “holder”of the bill of lading cannot come under liabilities imposed by section 3 unless he is a person in whom the contractual rights of suit have been vested by section 2(1). Secondly, if the person with a right of suit chooses to perform either of the actions referred to in paragraphs (a) and (b) of section 3(1), that person is choosing to exercise his contractual rights under the contract of carriage and to enforce them against the carrier. He does so, under paragraph (b) “by claiming a remedy for some breach by the carrier of the contract of carriage”. Lord Hobhouse describes these actions as involving “a choice by the indorsee to make a positive step in relation to the contract of carriage and the rights against the carrier transferred to him by section 2(1)”. Thirdly, Lord Hobhouse states that this positive step by an indorsee “has the character of an election, to avail himself of those contractual rights against the carrier”. I note here that throughout this passage in his speech, Lord Hobhouse appears to contemplate one person, the endorsee, making the claim and enforcing its rights under the contract. Fourthly, Lord Hobhouse comments, trenchantly, that there are “difficulties which neither the drafting nor the report face up to”.[94] These are that making a demand or claim may be unspecific, tentative or provisional and may be made at any time during the carrier’s performance of the contract of carriage. Thus, at the start of paragraph 33 of his speech, Lord Hobhouse states:
“To “make a claim” may be anything from expressing a view in the course of a meeting or letter as to the liability of the carrier to issuing a writ or arresting a vessel”.
Lord Hobhouse then states his conclusion on the correct interpretation of section 3(1), as follows:
“33 …………. From the context in the Act and the purpose underlying section 3(1), it is clear that section 3 must be understood in a way which reflects the potentially important consequences of the choice or election which the bill of lading holder is making. The liabilities, particularly when alleged dangerous goods are involved, may be disproportionate to the value of the goods, the liabilities may not be covered by insurance, the endorsee may not be fully aware of what the liabilities are. I would therefore read the phrase “demands delivery” as referring to a formal demand made to the carrier or his agent asserting the contractual right as the endorsee of the bill of lading to have the carrier deliver the goods to him. And I would read the phrase “makes a claim under the contract of carriage” as referring to a formal claim against the carrier asserting a legal liability of the carrier under the contract of carriage to the holder of the bill of lading.
Lord Hobhouse returned to the interpretation of section 3(1) later in his speech, when he was dealing with the question of whether an endorsee remained liable under section 3(1) if the bill of lading was transferred to a subsequent “holder” , thus giving that holder a right of suit against the carrier. Lord Hobhouse said:
“The character of the conduct which attracts the liability imposed by section 3(1) is expected to have an element of relative finality; it is not conduct which is tentative or equivocal nor conduct which is equally consistent with the person leaving it to a later endorsee to exercise the rights conferred by section 2(1)”.
The starting point of Mr Bryan’s submission is the successful request by Atlantis on behalf of Primetrade and cargo underwriters that the Owners and their P&I Club provide security for the claim for the loss of the cargo. Mr Bryan submits that a request for security is a formal claim to a right to security. It is tantamount to the assertion of a right to damages for a breach of the contract of carriage (in the bill of lading) and a right to arrest the vessel in respect of the claim arising out of the contract of carriage. Mr Bryan submits that Lord Hobhouse recognised that, if a holder of a bill of lading in whom rights of suit are vested arrested a ship in support of a claim under the bill of lading, that would constitute making a claim under section 3(1)(b). Mr Bryan submits that a request for security, which is repeated and is ultimately successful, should be put in the same category as an arrest by a bill of lading holder in support of a claim; so it constitutes making a claim within section 3(1)(b).
I agree that it would appear from paragraph 33 of his speech that Lord Hobhouse did regard an arrest of a ship by a holder of a bill of lading as making a claim under the contract of carriage, so he put it on a par with “issuing a writ” (sic). I would respectfully agree that an arrest would, usually, constitute making a claim. When a vessel is arrested a particular party, the claimant and arresting party invokes the formal procedures of the court to interfere with the use of a vessel by her owner. If the arrest is made recklessly, the arrestor lays himself open to a claim for damages for wrongful arrest. The arrest will be in support of an identified claim by one or more identified claimants. An arrest is made in support of either an existing claim process or one that is imminent in either the jurisdiction of the arrest or another. So, in my view, an arrest plainly constitutes a choice by the holder of the bill of lading to enforce its contractual rights against the carrier and has the character of an election. The question is whether the same reasoning applies to continued requests for security by an agent on behalf of a group of potential claimants, with an implication of a threat of arrest, but where no express threat is uttered.
For the purposes of considering this point, I accept the following facts: (1) Primetrade had sent a letter on 4 March 2004, reserving all its rights. The letter refers to both “the charterparty” and also the bills of lading. However, that letter was sent at a time when, on any view, Primetrade was not the holder of the bills of lading. (2) On 4 March Atlantis asked the Club for security for the cargo claim. At this early stage the Club knew that Atlantis acted for subrogated cargo underwriters.[95] (3) Atlantis was expressly authorised by Primetrade on 5 March to seek security from the Owners and their Club for a cargo claim. (4) As a result of the requests for security, Ms Forrest (of NEPIA) thought that there was a real risk of arrest of vessels in the same management as the “Ythan”, in various jurisdictions, in particular South Africa and China.[96] (5) From at least 8 March, the Club pressed Atlantis for the identity of who had title to the cargo at the time of the incident.[97] However, Atlantis said it did not know on 12 March.[98] (6) On 18 March the Club suggested the idea of a warranty of authority to provide consideration from the cargo owners (for the LOU), as a way of getting round the problem of identifying the cargo owner in the proposed LOU.[99] That was subsequently agreed. (7) The aim of the Club was to bind all possible cargo interests into an agreement to English law and arbitration for the prosecution of any cargo claims under the bills of lading and to prevent cargo interests from arresting “assets”.[100] (8) UBS paid for the shipping documents on 22 March, although the Club was not informed of this. (9) The LOU wording was agreed by 23 March 2004, but Ms Gerres of Atlantis insisted that the amount should be US$4.4 million.[101] (10) Ms Gerres pressed Ms Forrest to “settle the security aspect today”on 26 March.[102] A further chaser was sent on 29 March, after which Ms Forrest confirmed that the Club and the Owners agreed to provide the Club LOU in the wording previously agreed.[103]
Mr Bryan placed emphasis on events that occurred before 22 March, the date on which he said Primetrade became the “holder” of the bills of lading. In my view only limited use can be made of such material. Section 3(1) of the 1992 Act opens with the words:
“Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights of suit are vested by virtue of that subsection-
….
(b) makes a claim….
This indicates that the claim has to be made at the time that the maker is the holder of the bill of lading and the right of suit is vested in the holder, rather than any time before then. The previous history can be examined for the background, but, in my view, the question of whether a claim is made must be decided by examining what happened after the alleged “claimant” is vested with rights of suit pursuant to section 2(1).
Secondly, Mr Bryan placed reliance on the internal reactions within the Club and the office of the Owners and managers to the continuing demands for security, as support for the conclusion that Primetrade was “making a claim”. He did so in respect of material that did not “cross the line”, ie. was not expressed to Primetrade or Atlantis, eg. how the Club increased its reserves in respect of a potential claim and how that might affect a member of the Club such as the Owners.
I regard none of this evidence as relevant and I think it cannot be taken into consideration in deciding whether or not Primetrade made a claim within section 3(1)(b). The whole tenor of Lord Hobhouse’s analysis and his commentary on section 3(1) indicates that the question to be addressed is factual and objective: did the holder of the bill of lading, by its words and/or deeds, make a claim against the carrier? What the carrier or its agents thought was being done or what the consequences might be if something was done are irrelevant, unless that thought or view was expressed to the claimant and the claimant commented on it.
In my view, on the facts of this case, the successful request by Atlantis for security in the form of the LOU does not amount to making a claim for the purposes of section 3(1)(b). My reasons are: first, that this request for security for a claim, even though successful, is different in character from the arrest of a vessel in support of a claim. The latter is a formal use of court procedures by identified claimants in the context of an existing suit or one that is started at the time of arrest. An arrest is a positive, formal, and final action by a claimant. An LOU, by contrast, is a contractual arrangement. In this case throughout discussions the precise identity of the potential claimant was not known to the Club and the Owners. Hence the wording of this LOU leaves at large the question of who is the owner of the cargo or any “other persons entitled to sue in respect of the cargo”.[104] I accept that, in this case, the request for security carried the implied threat of arrest. But the Club and the Owners were anxious to turn that to their advantage. They did so by insisting that all potential claimants would be bound as to jurisdiction (London arbitration) and an agreement not to attempt to arrest vessels in the same management anywhere in the world. In return the Club agreed to pay an award made in respect of claims within the scope of the LOU. But, vitally, at all stages up to and after the provision of the LOU, no one is committed to making a claim against the Owners at all. Hence the LOU provides that the future claimant must give “notice of arbitration proceedings”.[105] Therefore the provision of an LOU is not a statement, made to the Owners through the Club, of a formal choice by Primetrade to avail itself of its contractual rights against the Owners.
Secondly, I attach importance to the fact that at no stage was it stated, expressly or impliedly, that it was Primetrade that was making a claim. Primetrade was one of the possible claimants. The Club did not explore the matter further once Atlantis had agreed to provide the warranty of authority. Therefore at no point were the Owners, through the Club, made aware that it was Primetrade that had finally chosen to exercise its rights of suit under the bills of lading. It may have seemed possible or even likely to those on Atlantis’ side that it would be Primetrade that made a claim, if at all. But, as Mr Diamond states at paragraph 22 of his dissenting Reasons, it cannot have been assumed by the Owners and the Club that the only possible party to a potential arbitration was Primetrade, even after Orient Prosperity and Minmetals “cancelled” their contracts with Primetrade. Certainly no one on Atlantis’ side had said to the Club that there would be an arbitration and Primetrade would be the claimants.
Thirdly, I have considered the decision of the Court of Appeal in Rank Enterprises Ltd v Gerard.[106] In that case the claimants bought three ships on terms included in the standard form of ship sale contract known as the Norwegian Sale Form. Clause 9 of the terms is a warranty by the Sellers that the vessel being sold is, at the time of delivery, “free from all encumbrances, mortgages and maritime liens or any other debts whatsoever”. The clause then continues:
“Should any claims which have been incurred prior to the time of delivery be made against the vessel, the Seller hereby undertakes to indemnify the Buyers against all consequences of such claims”.
The defendant, Mr Jacques – Raymond Gerrard, gave a guarantee to the Claimant buyers in respect of the purchase. Under its terms he irrevocably guaranteed that “should any claim which has been incurred prior to the time of delivery…be made against and in respect of any of the vessels”, he would pay for any loss or expenses arising out of or in connection with such claims. The claimant asserted that claims within clause 9 of the NSF had been made against the vessels and that the defendant must pay under the guarantee.
In the Court of Appeal there were two issues, both of which involved the construction of the second sentence of clause 9 of the NSF which I have set out above. Only the second issue, which was raised on a cross – appeal, is directly relevant to this case. However, that has to be put in the context of the first issue. That issue was whether the words “claims which have been incurred prior to the time of delivery” in clause 9 were limited to claims in respect of which the sellers were actually liable, or whether they embraced claims asserted against the seller, for which he might or might not be liable. The second issue before the Court of Appeal was: what is meant by claims “against” a vessel? At first instance, Toulson J had held on the first issue that “claims…incurred” embraced only actual or contingent claims incurred prior to delivery. On the second point he had held that the words meant a demand coupled with a real and present threat to arrest the vessel, without any necessity for proceedings to have been issued or an order of arrest to be obtained.
In the Court of Appeal Mance LJ (as he then was) delivered the judgment with which Kennedy and Thorpe LJJ agreed. On the first point, the Court of Appeal held that Toulson J had taken too narrow a construction of the phrase “claims…incurred”. They held that it included claims made, whether the liability asserted by such claims might prove to exist or not.[107] On the second point, on the ambit of “claims ….made against the vessel”, the Court rejected a submission that the phrase was limited to claims in rem, where the vessel had been arrested or an order for arrest had been obtained. The Court of Appeal held that “claims” refers to a demand or an assertion of rights against the vessel, which carried with it a real and present threat to seizure of the vessel.[108]
The Court in that case was concerned with the effect of different wording in a different context. In particular it was not concerned with an action by a person which would result in that party itself being liable on a contract on which it otherwise could not be sued. Moreover the interpretation of the words “claims…made against the vessel” had to mesh with the interpretation of “claims….incurred”, because the reference is to the same “claims”. Given the Court of Appeal’s decision to give a wider interpretation to the phrase “claims…incurred”, in NSF clause 9, it was inevitable that a broader interpretation be given to the phrase “claims…made against the vessel”, where it is the same “claims” involved.
Therefore, like Mr Diamond QC, I do not find the Rank case of any assistance in deciding on the scope of section 3(1)(b) of the COGSA. Mr Bryan also referred me the commentary in a volume entitled Contracts for the Carriage of Goods by Land, Sea and Air.[109] That contains a discussion of the circumstances in which a claim might be made under section 3(1)(b) when no proceedings have been issued.[110] However, the passage acknowledges that the answer will depend on the facts of the case under discussion.
Fourthly, I have considered the practical points referred to by Lord Hobhouse[111] as reasons why it necessary to read the phrase “makes a claim under the contract of carriage” as referring to a formal claim against the carrier. Mr Bryan submitted that from as early as 3 March 2004, Primetrade was aware from reports in Lloyd’s List that it was alleged the cargo was dangerous;[112] that Mr Herzig knew it was intended to pressurise Owners to give security and that Primetrade was at the time a sophisticated trader in the FOB and CIF market, with access to lawyers to protect its position. Yet, he said, Primetrade permitted Atlantis to act as it did on Primetrade’s behalf. But even if Primetrade was aware of the consequences of making a claim, that cannot, by itself, turn its or Atlantis’ actions into the making of a claim. That depends on what Primetrade said or did towards the Owners through the Club.
Conclusion on Issue Two
Ultimately, whether the actions of Primetrade, through Atlantis during the period 22 to 29 March 2004 constitute making a claim under the contract of carriage against the Owner is a question of fact. In my view, given the approach to interpretation that I must adopt, following Lord Hobhouse’s analysis in the “Berge Sisar”, I have concluded that the actions do not bring Primetrade within section 3(1)(b).
G: Conclusions overall
For convenience I summarise my conclusions:
(1) On the proper interpretation of section 73(1) of the Arbitration Act 1996, an appellant under section 67 of the Act is entitled to argue any point coming within the existing “grounds of objection” to the jurisdiction that were raised before the arbitrators. The “grounds of objection” should not be examined closely as if a pleading, but broadly. In this case all the arguments which the appellants wish to advance on the appeal are within the two grounds of objection to jurisdiction advanced before the arbitrators.
(2) On the facts of this case, where the vessel and cargo have sunk and been totally lost, the question of whether a party has become a “holder” of the bills of lading after that event is to be dealt with according to section 5(2)(c) of the Carriage of Goods by Sea Act 1992, not section 5(2)(b).
(3) In this case, on the facts, Primetrade did not become the “holder” of the bills of lading on 22 March 2004 when the bills were sent from UBS to Marsh. That “transaction” was made to enable Primetrade to collect the insurance proceeds from the underwriters, and that was not one by virtue of which Primetrade would have become a holder had the transaction been effected at a time when possession of the bills would have given a right to possession of the goods to which the goods relates.
Bayoil SA v Seawind Tankers Corporation
[2000] EWHC 213
Langley J
20. ISSUANCE AND TERMS OF BILLS OF LADING
….
(b) The carriage of cargo under this Charter Party and under all Bills of Lading issued for the cargo shall be subject to the statutory provisions and other terms set forth or specified in sub-paragraphs (i) through (vii) of this clause and such terms shall be incorporated verbatim or be deemed incorporated by the reference in any such Bill of Lading. ……
(i) CLAUSE PARAMOUNT. This Bill of Lading shall have effect subject to the provisions of the Carriage of Goods by Sea Acts of the United States, approved April 16, 1936 …. The applicable Act, ordinance or legislation (hereinafter called the “Act”) shall be deemed to be incorporated herein and nothing herein contained shall be deemed to be a surrender by the Owner of any of its rights or immunities or an increase of any of its responsibilities or liabilities under the Act. If any term of this Bill of Lading be repugnant to the Act to any extent, such term shall be void to that extent but no further.
(I shall refer to this as the Clause Paramount)
The Arbitrators chose to deal with the second of the two issues first. They concluded that although after the breakdown the vessel could not perform a laden passage at 11 knots, reading the charterparty as a whole there was no conflict between the two clauses (para 13) and it was still open to the Owners to claim to be relieved from liability if they had complied with their Hague Rules’ obligations.
It was the Charterers submission before the Arbitrators and before me that the Speed Warranty was an absolute warranty (subject only to the two exceptions of weather and safe navigation) to the effect that the vessel would perform the voyage at 11 knots and that, as it was common ground that after the engine failure it could not do so, the warranty was broken. Mr Collins placed importance on the word “will”, the fact that the warranty appeared in a voyage charterparty which was an immediate spot fixture, and on the existence of the two express limited exceptions. As to the Clause Paramount, it was Mr Collins submission that it could not affect the true construction of the Speed warranty nor a “tailor-made” term agreed between the parties, a factor which was also reflected in the express provision that the provisions of Part 1 were to prevail over those in Part 2 “in the event of a conflict”. Finally he submitted that in any event as Section 5 of the United States Act expressly provided for a carrier to be at liberty to increase “his responsibilities and liabilities” above those provided by the Act it should be concluded that it had done just that by the Speed Warranty.
Mr Eder’s submission for the Owners was simply that it was axiomatic that the charterparty should be construed as a whole, that doing so it was possible to give effect and meaning to the Speed Warranty and the Clause Paramount so that the Speed Warranty applied subject to the exceptions of the Clause Paramount if but only if they were otherwise applicable. He also submitted that it would be a remarkable thing for an Owner to agree that come what may apart from weather and safe navigation a vessel would complete a voyage at a speed of 11 knots.
I was referred to two authorities. Perhaps unsurprisingly each counsel relied on them to support their submissions.
In Marifortuna Naviera SA v Government of Ceylon [1970] 1 Lloyds Rep 247 Mocatta J held that an express “tailor-made” clause (Clause 21) providing that the Owners should be “responsible for” expenses incurred by a failure of the vessel to be ready to load when notified prevailed over the paramount clause in the particular charterparty. The failure was the result of an excepted cause (negligent navigation) but the paramount clause contained no “non-repugnancy” provision nor an express incorporation provision of the type of the present clause. Had it done so, as Mr Eder submits, and Mr Collins accepts, the result would probably have been different (see in particular at pages 255-6). Further it was an important part of the reasoning of Mocatta J that if the paramount clause were to prevail there was “little or no practical value to be attached” to clause 21.
Although Mr Collins submitted that the same applied in this case I agree with Mr Eder that it does not. A failure of the vessel to make 11 knots for reasons not the subject of any of the Hague Rules’ exceptions would be a breach of the charterparty. The example used in argument was where it was shown that the vessel in normal operation was only capable of a laden speed of 10 knots.Whether the Speed warranty is absolute as Mr Collins contends or only a capacity warranty it has purpose.
The second authority is the Satya Kailash [1984] 1 Lloyds Rep. 588. In that case the chartered vessel damaged the vessel it was engaged to lighten by negligent navigation. The charterparty contained a Clause Paramount (Clause 24) referring to the 1936 United States Act “which shall be deemed to be incorporated herein”. The Clause Paramount was held to be effective to exclude claims for the damage.
The charterparty also contained Clauses (Clauses 39 and 52) which provided that the chartered vessel would be fully seaworthy on delivery. It was argued for the claimants in the context of a submission (which was rejected) that the 1936 United States Act was not effectively incorporated into the charterparty that the submission was supported by the presence of the two clauses imposing unqualified obligations of seaworthiness. Robert Goff LJ considered the submission at page 594. He said:
…in our judgment these clauses (39 and 52) cannot affect the construction to be placed on Clause 24 as such. The most that could be said of these clauses is that, as typed clauses, they might be given precedence over the printed clause paramount in Clause 24 so as to override pro tanto the provisions of s 4 (1) of the United States Act as incorporated into the charter. We cannot see that the fact that the parties have thought fit to provide for an absolute warranty of seaworthiness in these clauses can otherwise affect the incorporation of the United States Act into the charter by clause 24. If anything their presence presupposes that the qualified seaworthiness obligation under sections 3(1) and 4(1) of the United States Act would otherwise be applicable.
In these dicta, Robert Goff LJ was expressly addressing a direct and irreconcilable conflict between a typed clause and a printed clause. In my judgment that is to beg the first question which arises in this case and which was I think the question the arbitrators also addressed. Unless Mr Collins can establish such a conflict in this case, I do not see how he can derive assistance from these dicta. It also demonstrates the dilemma for Mr Collins which I think became apparent during the submissions. If there was no conflict, as he said first was his primary submission, then it acknowledged the two clauses could properly be reconciled. If there was a conflict it presupposed that reconciliation was not possible because the Speed Warranty had to be construed as an absolute warranty despite Mr Eder’s submissions that it would be a remarkable agreement for an Owner to make.
CONCLUSION
Whilst I, like the Arbitrators, think there is force in Mr Collins’ submissions on the proper construction of the Speed warranty addressed in isolation and I accept that tailor-made clauses will normally prevail over typed clauses that is in my judgment only so if there is indeed a “conflict” between the two (as this charterparty also expressly provides). The courts will, however, seek to construe a contract as a whole and if a reasonable commercial construction of the whole can reconcile two provisions (whether typed or printed) then such a construction can and in my judgment should be adopted. The “conflict” can of course be found either as a matter of language or effect. In the Satya Kailash the Court was addressing a conflict of language. In the Marifortuna Mocatta J was addressing a conflict which resulted in an express clause being rendered without any practical effect.
In this case I accept Mr Eder’s submission. In my judgment the Arbitrators were right both to address first the question whether the two clauses could and should be construed so as not to conflict and to conclude that they could. They can sensibly and commercially be read together so that the Speed Warranty is o apply as such but subject to the Owners establishing, if it be material, that the cause of the vessel failing to reach 11 knots was one or more of the statutory exceptions. If it were otherwise the Clause Paramount would be emasculated in a manner which is contrary to its express terms. I do not think the wording permits any reliance on Section 5 of the United States Act as it says in terms that the Owner is not to be deemed to be surrendering any of its rights or immunities under the Act. In any event Clause 5 is of no relevance if the Speed Warranty and the Clause Paramount are not in conflict.
If (as I think it may well be) that is to read the Speed Warranty as in effect a provision that the vessel is capable of a speed of 11 knots on “a” laden voyage rather than an absolute warranty that it would perform the chartered voyage at that speed come what may (except bad weather or navigation) then in my judgment such a result is both legitimate and indeed commercially appropriate. Not only do I agree with Mr Eder that it would be remarkable for an Owner to make the agreement for which Mr Collins contends but I cannot conceive why an Owner who did so would choose to except from it only weather and navigation conditions but not other matters which could arise without any semblance of fault on his part.
For these reasons as I indicated at the end of the hearing this appeal will be dismissed, and I will hear the parties on any orders as to costs they may seek. I should record that I also declined to give permission to appeal as I did not consider that the matter was one which fell within Section 69(8) of the Arbitration Act 1996.
Welex A.G. v Rosa Maritime Ltd.
[2003] EWCA Civ 938 [2003] 2 Lloyd’s Rep 509, [2003] 2 CLC 207, [2003] 2 LLR 509, [2003] EWCA Civ 938
Tuckey LJ
Incorporation
The judge decided this issue and the appeal has been argued before us on the basis that English law is applicable. The judge first considered whether the recap telex and standard form to which it refers constituted the “Charter Party” referred to in the bill of lading on the assumption that no final charterparty had been drawn up by the time the bill was issued. In concluding that it did he rejected Welex’s submissions saying:
(i) There is in my judgment no significance in the use of capital letters, any more than there is anything to be derived by dictionary references to charter-parties in the form of deeds.
(ii) While a contract for chartering a ship is normally embodied, in due course, in a printed form, the parties’ agreement can remain in the written fax or telex exchanges: a signed charter-party is unnecessary: Lidgett v Williams (1845) 4 Hare 456.
(iii) The terms can readily be identified from the contents of the recap telex and the standard form to which it refers. Indeed, freight was payable (and paid) according to the terms of the very same charter-party.
(iv) There is no significance in the fact that the formal written agreement, whether executed or not, is in different terms, subject of course to the appropriate authority of those who have executed it: Rossiter v Miller [1873] 3 App. Cas. 1124.
(v) The absence of an identifying date on the bill of lading does not negative incorporation: The San Nicholas [1976] 1 Lloyd’s Rep. 8, The SLS Everest [1981] 2 Lloyd’s Rep. 389.
Welex had relied on the decision of Judge Diamond Q.C. in The Heidberg [1994] 2 Lloyd’s Rep. 287, but the judge thought that this case was only authority for the proposition that the transferee of a bill of lading should not be affected by oral terms. He concluded by saying that the commercial realities, which included the fact that Welex was aware of and had approved the fixture, were wholly inconsistent with its submissions.
The judge then considered the issue of fact as to whether a formal charterparty had been executed “prior to the completion of discharge, referable to a date prior to the bill of lading” and on his findings that it had been, he concluded that the arbitration clause in that document (alternatively in the recap telex) was incorporated into the bill of lading.
Mr Dunning Q.C. for Welex submits that both of the judge’s conclusions were wrong. The court’s task was to construe the words “the Charter Party dated as overleaf” in the bill. In doing so it should bear in mind that the Congenbill form is widely used and may serve a number of purposes and be held by parties in different capacities. Consignees, indorsees and pledgees are unlikely to be aware of the terms of the charter party. If the terms of that contract are to be incorporated there is a need for certainty so that all such parties know where they stand. This is particularly the case with an arbitration clause because such a clause is not germane to the receipt, delivery or carriage of the cargo and operates to exclude access to the courts. (T.W. Thomas & Co. v Portsea Steamship [1912] AC 1 and The Federal Bulker [1989] 1 Lloyd’s Rep. 103). The question to be asked was: what would an ordinary businessman having both documents before him think with regard to the applicability of the arbitration clause in the charterparty to bill of lading disputes? If he was left in any doubt on the matter the arbitration clause would not be incorporated. (See The Annefield [1971] P 168, 177). The words in question here cannot refer to a recap telex which is not a charterparty or at least there must be some doubt about the matter. They refer to a single document of a formal kind. Under section 2 (1)(b) of the Carriage of Goods by Sea Act 1992 a named consignee becomes a party to the contract in the bill of lading when it is issued. That is the time at which the court must look to see whether the charterparty has been incorporated. On 9th April when the bill of lading in this case was issued there was no executed charterparty because it is common ground that Mr Uzon had not signed the charterparty on behalf of Charterers by that time.
I accept Mr Dunning’s submission about the need for certainty but in this case it is important to bear in mind a number of other factors. Both the bill of lading and the charterparty relate to the same voyage by the same carrier. It is obvious that the shipowner will want to ensure, so far as possible, that his rights and obligations as carrier as against the original and any later holder of the bill of lading are the same as his rights and obligations as against the charterer. The Congenbill form which on its face says it is “to be used with charterparties” is designed to achieve this objective. It should be apparent to any holder of the bill that all the terms of the contract are not contained in that document and that the other terms are to be found in the related charterparty. I suspect that these factors explain why the courts more readily accept that terms are incorporated into bills of lading than in some other contractual contexts.
The particular concern about the incorporation of arbitration clauses is met by the Congenbill form which expressly says that it incorporates all terms of the charter party “including the law and arbitration clause”. Parties involved in transactions such as these will be aware that contracts of this kind do commonly contain dispute resolution machinery and often provide for arbitration in some neutral forum.
With these considerations in mind I do not think that there is any reason to give a narrow meaning to the words “the Charter Party” in the bill of lading. The use of capitals is insignificant. For no good reason the words “law”, “arbitration” and “clause” are dignified in the same way. The clear intention is to refer to the contract under which the vessel which is to carry the goods the subject of the bill has been chartered. Whilst the omission of the date on the face of the bill is not fatal (see the two Court of Appeal decisions to which the judge referred), no one could infer from this that the parties to this bill had not intended to incorporate the terms of the charter because immediately above the box with the blank in it the bill contains the typed term that “freight is to be payable as per the charter party”. The context (e.g. the words “date” and “clause”) strongly suggests that the reference is to a document or to documents; in other words to a charter which has been reduced to writing.
In The Heidberg brokers had agreed the terms of a charter orally. The recap telex erroneously referred to standard terms which provided for arbitration in Paris, whereas the standard terms orally agreed provided for London arbitration. The bill of lading which was in much the same form as the Congenbill incorporated the terms of “the charter party dated (blank)”. Judge Diamond held that these words did not incorporate a charter agreed orally. They referred to a charterparty which had been reduced to writing. His reasons for this conclusion include the need for terms incorporated by reference to be readily ascertainable. Extensive investigation as to the undocumented contractual arrangements of third parties would introduce considerable uncertainty. I agree, but do not accept Mr Dunning’s submission that reference to a recap telex would produce similar uncertainty. Take the instant case: a quick look at the telex and the accompanying terms would have left the reader in no doubt that the charter required London arbitration. The same applies to the other important terms of the contract. Although there was an inconsistency between the two forms of clause 47 the parties clearly expressed their choice of London arbitration from which it would follow that the expanded form with its reference to the LMAA rules was to apply. Arbitration in London subject to GMAA rules would make no sense.
But Mr Dunning submits that Judge Diamond supports his submissions. He relies on the passage at p. 311 where the judge said:
I therefore consider that, as a matter of the construction of the bill of lading, it does not incorporate the terms of a charterparty which, at the date the bill of lading is issued, has not been reduced to writing. For the reasons given earlier an oral contract evidenced only by a recap telex, does not seem to me to qualify for this purpose. I should add moreover that if I am wrong on this, I would still conclude that the bill of lading does not on its true construction incorporate an oral agreement for arbitration in London which at the date of the bill of lading was not evidenced by any document at all.
Like David Steel J., however, I do not think Judge Diamond’s earlier reasons support the view that a recap telex does not qualify. They clearly support the view that an oral agreement which has not been reduced to writing does not qualify, but a recap telex does reduce the contract to writing. Earlier in his judgment (at p. 312) Judge Diamond had been prepared to accept that such a document “might perhaps be treated as capable of being incorporated into a bill of lading”. I think it can, although I do not say this will always be the case. Mr Dunning suggested that if we uphold the judge’s decision, holders of bills of lading would find themselves having to trawl through endless telex exchanges and other documents to which they refer in order to ascertain the terms of the incorporated contract. I do not agree. One cannot generalise in these cases. If the contract is readily ascertainable, as it is in this case, there is no uncertainty and its terms will be incorporated. If it is not, there will be no incorporation.
So for these reasons I conclude that the judge reached the right conclusion about the recap telex. But as the judge also decided that there was in fact a formal charterparty, I turn to consider Mr Dunning’s criticism of this part of his decision.
It is normal practice for the agreed terms of a fixture to be drawn up into a formal document which is signed by the parties to it. This document is not usually intended to vary or supplement the essential terms of the contract which have already been agreed, but merely to set the contract out fully in a document or documents which the parties will then execute. But sometimes this is not done at all and often it will not be done for some time. To meet the objection that if the charterparty had to be executed by the time the billof lading was issued the bill of lading might not function satisfactorily, Judge Diamond said in The Heidberg (p. 310) that:
If a formal charterparty has been executed in sufficient time to be sent or shown to the bill of lading holder when he first demands to be shown a copy, (and if the date on the charterparty is earlier than that on the bill of lading), I do not see why the court should go behind the date which appears on the charterparty or should investigate whether the charterparty was executed before or after the bill was issued.
This seems to me to be a commendable pragmatic approach to the problem. Whenever the formal document is executed, if it is referable to a contract which is made before the date of issue of the bill of lading the tests of ascertainability and certainty are met. In this case, although the document is undated, it is clearly referable to a fixture made in March 2001. Welex did not ask to see it until September 2001. The judge proceeded on the basis that the relevant time was the completion of discharge. But by either of these times the formal document had on the judge’s findings been executed.
It follows that I do not think there is anything in Mr Dunning’s point that the formal document was not executed by both parties to the contract until after the date of issue of the bill of lading. He takes a further point, however, based on the fact that when Welex did ask to see the charter party Rosa failed to produce anything for some time and have never in fact produced the original executed document or a true copy of it. This is regrettable but I do not think it can affect the legal rights of the parties. On the judge’s findings there was a document which could have been produced in April 2001. That document was sufficiently identified by and incorporated into the bill of lading. The fact that the original or an original copy could not subsequently be produced cannot alter the position. If, for example, the original charterparty had been lost the fact that the shipowner could only produce secondary evidence of its existence could not affect the rights and obligations created by the bill of lading.
It follows that I think the judge’s other reason for finding that the arbitration clause was incorporated into the bill of lading was also correct.
The Anti suit injunction
Jurisdiction
David Steel J. refused permission to appeal against either of his decisions. This court (The Master of the Rolls and Rix L.J.) granted permission. Immediately before the hearing Ms Karen Troy-Davies, for Rosa, put in supplementary submissions in which she said that this court had no jurisdiction to hear the appeal against the injunction.
Rosa’s application for an anti-suit injunction was first made to the arbitrators under section 48 (5) of the Arbitration Act 1996, which gave the tribunal the same power as the court “to order a party to do or refrain from doing anything”.
Section 44 of the Act gives the court power to grant an interim injunction “for the purposes of and in relation to arbitral proceedings” but as the anti suit injunction was a final injunction it is common ground that it was not made under this section.
Welex’s application for a declaration that there was no valid arbitration agreement was made under section 72 of the Act because they had taken no part in the arbitration. This section does not restrict the right of appeal. Faced with this application Rosa sensibly agreed that their application for an injunction should be heard by the court at the same time as Welex’s section 72 application and this is what happened with the consent of the arbitrators. No-one gave any thought at the time as to the basis of the court’s jurisdiction to grant the injunction, but Ms. Troy-Davies submits that it must have derived either from section 32 or section 45 of the Act although no application was in fact made to the court under either of these sections or considered by the court as having been so made.
Section 32 gives the court power to determine any question as to the substantive jurisdiction of the tribunal provided certain conditions are met. Section 45 gives the court power to determine any question of law arising in the course of the arbitration subject to similar conditions. Both sections restrict the right of appeal to cases where the court of first instance has given leave.
But neither section 32 or section 45 confer any express jurisdiction on the court to grant final injunctions in aid of decisions made under these sections. Ms Troy-Davies submits that such jurisdiction is to be implied. I do not accept this. The Act spells out the court’s jurisdiction when it is performing the various functions assigned to it. The fact that no express power to grant injunctions is given to the court when it is exercising its powers under section 32 or section 45 is determinative.
I accept Mr Dunning’s submission that the High Court’s jurisdiction to grant permanent anti-suit injunctions derives from its general power under section 37 (1) of the Supreme Court Act 1981 to grant a final injunction in “in all cases in which it appears to the Court to be just and convenient to do so”. There is no restriction on the right to appeal from such an order. This therefore is the short answer to Ms Troy-Davies’ late point.
The Merits
The judge referred to The Angelic Grace [1995] 1 Lloyd’s Rep. 87 and Donohue v Armco [2001] UKHL 64, [2002] 1 Lloyd’s Rep 425 to the effect that Welex had to show strong reasons for being allowed to proceed against Rosa in a non-contractual forum.
Of Welex’s concern about losing their security in Portugal if they were forced to arbitrate in England, he said that the decision of the Portuguese court in July 2002 not to release the vessel without a guarantee of Rosa’s liability should allay Welex’s fears.
The judge recognised that there was some doubt as to whether it was appropriate to grant an anti suit injunction where, as here, the other forum (Poland) was a party to the Lugano Convention and that the risk of that proceedings would continue there against Alexia was potentially a highly significantly factor. He did not, however, think that this was a factor of great weight in the present case because:
In the event that Welex are required to arbitrate their claim against Rosa, it would seem improbable that they would concurrently continue to pursue their claim against Alexia in Poland. The claim filed in Poland asserts that Rosa is liable by virtue of Art. 160 of the Polish Maritime Code. As regards Alexia, the pleaded case is that the transfer of ownership does not preclude the recovery from the proceeds of sale of the vessel.
Thus Welex can only enforce a claim against the vessel (or its proceeds) if it first establishes liability on the part of Rosa. But, if Welex anticipated succeeding on liability before the arbitrators, it is difficult to see on what basis it would meanwhile wish to continue or resurrect the Polish proceedings against Alexia. In any event Alexia have offered to arbitrate in London themselves.
As to questions of convenience the judge said:
The primary issue of fact relates to the condition of the cargo on loading in the Ukraine as compared with its condition on discharge in Poland. The vessel was managed in Cyprus and manned by a Philipino crew. The surveyors were variously Ukrainian, Polish and Belgian. On the other hand, all the documents are in England or have been translated into English for use in the arbitration proceedings. In contrast, the Polish proceedings have yet even to be served. Furthermore, it would appear that the Polish Courts would not apply English law despite the choice by the parties (albeit it is fair to say that there is no evidence that the substantive law on liability is any different). In these circumstances, whilst Poland might on balance be more convenient than England, it is not a matter of significant weight.
Finally the judge added by reference to the observations of Colman J. in Toepfer v Cargill [1997] 2 Lloyd’s Rep. 90, 110 that matters such as forum non conveniens or the risk of inconsistent decisions were of little weight in a case to which the New York Convention applied (as it does in this case) since the Convention left no room for discretionary flexibility in the enforcement of an arbitration clause.
Mr Dunning submits that the court should first start by assessing what weight to give to the arbitration clause in the contract. Where, as here, the term was not negotiated by or known to Welex, but imposed upon them by statute, little weight should be given to it. Its effect was outweighed principally by the fact that if it was enforced Welex’s security would be put at risk. In The Angelic Grace and other cases in which anti-suit injunctions have been granted there was no question of the party enjoined losing security as a result. The judge was wrong to say that the decision of the Portuguese court would allay Welex’s fears: it did not address Welex’s concern that the security would not be available to satisfy an English arbitration award against Rosa at all. Nor was the judge right to say that Welex would not proceed with the Polish proceedings against Alexia. Poland, the country in which the cargo was to be delivered, was the obvious natural forum for deciding the dispute, which had no connection whatsoever with England. Finally the English court should be inhibited about granting anti-suit injunctions where the New York and Lugano Conventions applied. In this case it should be left to the Polish courts to decide whether they had jurisdiction. For all those reasons the judge should not have granted the injunction in this case.
The applicable law was clearly summarised by Lord Bingham in Donohue v Armco where at para. 24 he said:
If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the non-contractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum. I use the word “ordinarily” to recognise that where an exercise of discretion is called for there can be no absolute or inflexible rule governing that exercise, and also that a party may lose his claim to equitable relief by dilatoriness or other unconscionable conduct. But the general rule is clear: where parties have bound themselves by an exclusive jurisdiction clause effect should ordinarily be given to that obligation in the absence of strong reasons for departing from it. Whether a party can show strong reasons, sufficient to displace the other party’s prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case. In the course of his judgment in The Eleftheria, [1969] 1 Lloyd’s Rep. 237 at p. 242 Mr Justice Brandon helpfully listed some of the matters which might properly be regarded by the court when exercising its discretion and his judgment has been repeatedly cited and applied. Mr Justice Brandon did not intend his list to be comprehensive, but mentioned a number of matters, including the law governing the contract, which may in some cases be material.
I need not cite the well-known passage from The Eleftheria to which Lord Bingham refers but the matters listed included prejudice as a result of being deprived of security for the claim and other factors of convenience. Nevertheless the starting point is, as the judge said, that the party suing in the non-contractual forum must show strong reasons for doing so or he faces the prospect of an injunction being granted against him. I accept that the court should take into account how serious the breach is. In other words a defendant who cynically flouts a jurisdiction clause which he has freely negotiated is more likely to be enjoined than one who has had the clause imposed upon him and has acted in good faith. But I do not think this leads to a sliding scale of enforcement. The parties to a contract, however it is made, should abide by its terms. If they have agreed to resolve their disputes in a particular way they should be kept to their bargain unless there are strong reasons for not doing so.
I accept that loss of security could amount to a strong reason for not granting an injunction. But should it do so in this case? I have already set out the facts which show, I think, that it is not at all clear whether the security in Portugal would be available to meet an arbitration award against Rosa in England. The most that can be said is that there is a risk that it will not be available. I accept that the judge over-estimated the comfort which Welex could derive from the Portuguese court’s decision in July 2002, although at least it showed that the court expected the security to be available to meet the claims against both Alexia and Rosa. But what leads me to attach less weight to the risk that Welex will lose their security than I would otherwise have done is that they have brought this on themselves. The Portuguese court did not prescribe the proceedings which had to be brought. If Welex had started arbitration in London this whole dispute would have been resolved ages ago. Instead it made no enquiries about the terms of the charterparty until after it had started proceedings in Poland and, (arguably), the 60 days had elapsed. This, despite the fact that Alexia were relying on the arbitration clause in July in the Portuguese proceedings. Welex say that it was entitled to assume that Alexia had put forward Rosa’s best case for incorporation of the charterparty terms and mere production of the standard terms proved nothing. That may be, but a simple request to Rosa would I suspect have immediately produced the recap telex, as it did in September, which, together with the terms, ought to have made it clear that Welex had to arbitrate in London. For these reasons I do not think that the risk that Welex will lose its security is determinative.
The proceedings against Alexia in Poland cannot be restrained. Alexia’s liability must, I should have thought, be contingent upon Rosa’s liability. All the judge was saying is that if Welex has to arbitrate its claim against Rosa in London it would not “concurrently” pursue its claim against Alexia in Poland. With an arbitration award against Rosa in London, which the Polish courts would be required to recognise under the New York Convention, Welex could proceed to establish their claim against Alexia if necessary. The risk of conflicting decisions in different jurisdictions would therefore be avoided. On the other hand, if the injunction were discharged, the London arbitration would doubtless proceed. The Polish court would have to decide whether it had jurisdiction over Rosa in which case there is a risk that its decision would conflict with that of the English courts on the incorporation issue. If the Polish court decided it had jurisdiction, there is a risk that its decision on the merits would conflict with the award in the arbitration. For these reasons I do not think that continuing proceedings in Poland against Alexia provide any reason for not enjoining Welex.
The judge summarised the convenience factors which I have quoted in para 44. I agree with his assessment of these factors. English law and London arbitration clauses are often chosen to provide a neutral forum for dispute resolution. By making this choice the parties accept that their dispute will have nothing to do with England.
Finally I accept that there is considerable debate as to whether the English courts should grant anti-suit injunctions where the Lugano or New York Conventions apply. Although the injunction acts in personam and is not directed at the foreign court this is not how it is always perceived. For the moment, however, the law is as stated in Donohue v Armco. A related;p0. point is before the European Court in Turner v Grovit [2001] UKHL 65, a case to which the Brussels Convention applies, but the reference is yet to be determined.
Applying the law as it now is to the facts of this case I think the judge was right to grant an anti-suit injunction in this case. I accept that he may not properly have evaluated the risk that Welex might lose their security and so to this extent his exercise of discretion was flawed. If so we have to exercise the discretion afresh. I would nevertheless hold that the injunction should be granted for the reasons I have given.
Conclusion
I would dismiss both of Welex’s appeals.
Lord Justice May: I agree.
Lord Justice Brooke: I also agree
JI MacWilliam Company Inc v. Mediterranean Shipping Company SA
[2005] UKHL 11 [2005] 2 AC 423, [2005] 2 All ER 86, [2005] 2 WLR 554,
LORD STEYN
My Lords,
I. The question of construction.
The Hague Rules (as scheduled to the Carriage of Goods by Sea Act 1924) and the Hague-Visby Rules (as scheduled to the Carriage of Goods by Sea Act 1971) provide by article I(b) that the rules contained in those international maritime conventions apply only to contracts of carriage “covered by a bill of lading or any similar document of title”. In a London maritime arbitration the question arose – apparently for the first time in a United Kingdom court or tribunal – whether a bill of lading consigned to a named consignee, a so-called straight bill of lading, is a conforming document under article I(b) of the Hague-Visby Rules. Such a straight bill of lading is to be contrasted with an “order” or bearer bill of lading each of which permits the transferability of the bill of lading to any number of transferees in succession, respectively by endorsement or delivery. In a dispute arising from cargo damage CIF buyers, the named consignees, as claimants alleged in the arbitration proceedings that article I(b) of the Hague-Visby Rules applied to the straight bill of lading in question. If that were correct the relatively generous package limitation under article IV Rule 5 of the Hague-Visby Rules would have been applicable, resulting in a claim of the order of US$150,000. On the other hand, the carrier contended that the straight bill of lading is akin to a sea waybill, which merely operates as a receipt. Accordingly, it was argued that article I(b) of the Hague-Visby Rules is inapplicable, and that package limitation is governed by section 4(5) of the US Carriage of Goods by Sea Act 1936, restricting the claim to US$2,000.
II. The arbitration award.
The arbitrators (Messrs Mabbs, Hamsher and Moss) sensibly directed that a preliminary question be determined on a legal issue, the thrust of which was whether package limitation under the Hague-Visby Rules or under the USCOGSA was applicable. For the purposes of determining this preliminary issue it was agreed that the damage to the goods, and the consequent loss, was the result of a breach of contract or negligence or breach of duty by the carriers and that the buyers had title to sue in relation to such loss and damage in both contract and tort.
By an award dated 30 May 2001 the arbitrators held that a straight bill of lading falls outside the scope of article I(b) of the Hague-Visby Rules and that the applicable package limitation regime was therefore that under the USCOGSA.
III. The decisions in the Commercial Court and Court of Appeal.
On appeal to the Commercial Court under section 1 of the Arbitration Act 1979, Langley J upheld the decision of the arbitrators: J I MacWilliam Co Inc vMediterranean Shipping Co SA (“The Rafaela S”) [2002] 2 Lloyds LR 403. The buyers appealed. The Court of Appeal (Peter Gibson and Rix LJJ and Jacob J) held that the Hague-Visby Rules did apply to the carriage of the goods and that the relevant package limitation regime was that under article IV rule 5 of the Hague-Visby Rules: J I MacWilliam Co Inc v Mediterranean Shipping Co SA [2004] QB 702.
IV. The Commercial Dispute and Context.
A United States company bought a printing machine and ancillary equipment on CIF terms from an English company. The sellers consigned the goods to the buyers. The carriers were a container liner operator and the demise charterers of the vessels “Rosemary” and “Rafaela S”. The goods were shipped from Durban aboard the “Rosemary,” as evidenced by a document entitled “Bill of Lading” dated 18 December 1989, which was issued by the demise charterers at Durban. The bill of lading evidenced a contract for the carriage of the cargo to Felixstowe and for on-carriage to be subsequently arranged to the final destination at Boston. The Bill of Lading named the buyers as consignees.
For present purposes the relevant provisions on the face of the Bill of Lading were as follows:
“(2) Consignee: (B//L not negotiable unless “ORDER OF”)
J I MacWilliam Company Inc.,
Box 6, New Town Branch,
Boston, Mass. 02258, USA
(11) Number of Original Bs/L 3 (THREE)
Freight Payable at DESTINATION
On-carriage to Boston to be arranged by MSC agents
RECEIVED in apparent external good order and condition the containers, other packages or units bearing marks or numbers indicated in the “Carrier’s Receipt” above said by the shipper to contain the quantity of goods, weights and measurements indicated in the “Particulars Furnished by the Shipper” above which particulars have not been checked by the Carrier. Such particulars are for Shipper’s and Consignee’s use only, are not part of the bill of lading terms and are not binding on the carrier.
IN ACCEPTING this Bill of Lading, the Merchant agrees to be bound for all the terms and exceptions and limitations whether printed, stamped or written hereon and on the reverse side and in particular agrees that the Carrier shall have the right to stuff cargo in containers and to carry on deck all kinds of containers, including trailers, tanks, flats, canvas tops, pallets or similar articles used to consolidate goods.
IN WITNESS whereof the number of Original Bills of Lading stated above all of this tenor and date, has been signed, one of which being accomplished, the others to stand void. One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or deliver order.”
It is to be noted that the bill of lading was not rendered transferable by an appropriate alteration of box 1. The last quoted provision on the face of the bill of lading is called the attestation clause. Subject to the fact that the bill of lading could not be transferred by endorsement beyond the consignee the face of the bill of lading is in familiar and standard form as one would expect to find in any order bill of lading.
On the reverse of the bill of lading, the relevant terms of the contract of carriage were set out in a small print. The opening words provided:
“This contract is between the Merchant and the Master, acting on behalf of the Carrier. Wherever the term ‘Merchant’ occurs in this Bill of Lading, it shall be deemed to include the Shipper, the Consignee, the holder of the Bill of Lading, the receiver and the owner of the goods …”
Then detailed provisions followed of the type that one would expect to see in any bill of lading. Except for the fact that the bill of lading was only transferable to the named consignee, it contained the usual terms regarding the matters relevant to the allocation of risks between the parties which are to be found in bills of lading.
The goods were carried from Durban to Felixstowe, discharged there and then loaded aboard the “Rafaela S”. This vessel carried the goods to Boston. No fresh bills of lading or other shipping document was issued in respect of the Felixstowe-Boston leg of the voyage. However, it is agreed that if any fresh bill of lading had been issued, it would have been in the same terms as that issued in respect of the carriage from Durban to Felixstowe. Whatever its import the bill of lading issued governed the voyage during which cargo damage was allegedly caused.
V. The issue on the appeal.
The issues have been narrowed since the Court of Appeal’s decision in this case. The sole issue on the appeal before the House of Lords is now whether a bill of lading not made out to order or bearer but to a named consignee (a straight bill of lading) is a bill of lading or similar document of title within the meaning of article I(b) of the Hague-Visby Rules and hence within section 1(4) of the Carriage of Goods by Sea Act 1971.
VI. What is the answer?
Rix LJ has comprehensively set out the competing arguments placed before the Court of Appeal which were repeated before the House: [2004] QB 715F-716G. It would serve no useful purpose for me to cover the same ground in this opinion. Instead I can move directly to considering the answer to the question before the House.
One must start with the function of the bill of lading in international trade. Through the centuries that role has changed. What started as a bailment receipt of goods developed into a receipt containing the contract of carriage, and in the course of time acquired a third characteristic, that of a negotiable document of title. It has long been understood that negotiability in this context is used in a special sense: it does not involve the idea that the endorsee gets a better title than his assignors. But it means that the document is transferable by endorsement not only to the consignee but successively to others.
In modern commercial usage the bill of lading is one of the pillars of international trade, providing the credit necessary for the financing of mercantile trade. The principal characteristics of the modern bill of lading are threefold. It operates as:
(a) a receipt by the carrier acknowledging the shipment of the goods on a particular vessel for carriage to a particular destination;
(b) a memorandum of the terms of the contract of carriage, which will usually have been concluded before the signing of the document;
(c) a document of title to the goods which enables the consignee to take delivery of the goods at their destination or to dispose of them by the endorsement and delivery of the bill of lading.
The sequence of events in the life of a bill of lading has been usefully summarised in Bills of Lading, Report by the Secretariat of UNCTAD, a United Nations publication published in New York, 1991, as follows [para 21]:
“(a) The shipper’s description of the goods, with his own name and that of the consignee inserted on the carrier’s form; particulars of the total gross weight and the measurement, for freight calculation purposes, and where necessary, the value of the goods, are also inserted by the shipper;
(b) The lodging of the bill of lading at the office of the shipowner or his agent or broker;
(c) The completion and checking of the contents of the bill of lading by the shipowner or broker against tallying details taken at the time of loading the cargo;
(d) The freight calculation;
(e) The signature of the bill of lading by or on behalf of the carrier or the ship’s master and by such other parties as may by law be required to do so in different countries;
(f) The release by the shipowner or his agent of the signed bill of lading to the shipper against payment of freight if the freight is prepaid; and, where appropriate, a mate’s receipt or equivalent document;
(g) The dispatch of the bill of lading by the shipper to the buyer or consignee or its lodgement with a bank when a letter of credit is involved;
(h) The surrender of the bill of lading by the consignee to the shipowner’s agent at the port of discharge in order that he may obtain delivery of his goods.”
Except in one respect, this is probably an adequate explanation of the usual course of dealings regarding bills of lading. The additional factor to be noted is that in practice it is left to the shipper to choose the words to be inserted in the ‘consignee’ box. So far as the carrier is concerned the inclusion or exclusion of the words “to order” is entirely adventitious: the shipper makes the decision. For the issues in the present case this factor is relevant inasmuch as, on the carrier’s argument, the applicability of the convention will depend on the shipper’s decision, usually made after the contract of carriage was made: Pyrene v Scindia [1954] 2 QB 402, at 419-420.
Before the era of international maritime conventions the general understanding of the role of a contract of carriage was explained in Hansson v Hamel & Horley Ltd 1921 Lloyd’s List LR 432 at 433, as follows:
” … What is meant by the expression ‘Contract of Affreightment’? In my opinion, to satisfy the requirements with reference to contract of affreightment, the seller must bring into existence a contract embodied in a form capable of being transferred to the buyer and which when transferred will give the buyer two rights: (a) a right to receive the goods, and (b) a right against the shipowner, who carries the goods, should the goods be damaged or not delivered’. …”
An appeal in Hansson was dismissed by the House of Lords: [1922] 2 AC 36. This quality of transferability came about in the laws of maritime nations in different ways – sometimes by statute law and sometimes by the evolution of the general law. In the United Kingdom the pivotal development was the enactment of the Bills of Lading Act 1855.
The 1855 Act provided:
“Whereas, by the custom of merchants, a bill of lading of goods being transferable by endorsement, the property in goods may thereby pass to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner; and it is expedient that such rights should pass with the property: And whereas it frequently happens that the goods in respect of which bills of lading purport to be signed have not been laden on board, and it is proper that such bills of lading in the hands of a bona fide holder for value should not be questioned by the master or other person signing the same on the ground of the goods not having been laden as aforesaid:
1. Consignees, and endorsees of bills of lading empowered to sue. – Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading, to whom the property in the goods therein mentioned shall pass upon or by reason of such consignment or endorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.”
[My emphasis]
The importance of this statute for the general development of our maritime law is apparent. Specifically, it also casts light on the way in which the specific question before the House should be approached.
Contrary to arguments of the carrier, it is in my view impossible to give a restrictive construction to section 1 so as to exclude straight bills of lading. Section 1 provides that “every consignee named in a bill of lading” is empowered to sue on it. It is true that the preamble only speaks of the custom of merchants by which a bill of lading is transferable by endorsement. But the substantive provisions of section 1 are wider and quite general. They cannot sensibly be read as applying only to a consignee named in an order bill. A named consignee is within the mischief which the 1855 Act sought to correct: before the Act was passed property in the goods passed to the named consignee but he had no right to sue in contract in respect of cargo damage suffered during the voyage unless it could be proved that the shipper had affected the original contract as agent for the consignee. Moreover, if the carrier’s restrictive interpretation is accepted, there would have been a major gap in the 1855 Act because a named consignee in a straight bill of lading on that basis could neither sue nor be sued on a contract of carriage evidenced by the bill of lading. Such an implausible interpretation must be rejected.
It is now necessary to turn to the relevant provisions of the Hague Rules which in material respects mirror the later Hague-Visby Rules. The relevant provisions are:
“Article I.
(b) “Contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charterparty from the moment at which such bill of lading or any similar document of title regulates the relations between a carrier and a holder of the same.
Article V.
The provisions of these Rules shall not be applicable to charterparties, but if bills of lading are issued in the case of a ship under a charterparty they shall comply with the terms of these Rules …
Article VI.
Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of the carrier, and a shipper shall in regard to any particular goods be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier in respect of such goods … provided that in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be a non-negotiable document and shall be marked as such.
Any agreement so entered into shall have full legal effect.
Provided that this Article shall not apply to ordinary commercial shipments made in the ordinary course of trade, but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed, are such as reasonably to justify a special agreement.”
Rix LJ explained with reference to articles I(b) and V that once “the bill of lading is transferred into the hands of a third party, then it springs into life as a separate contract of carriage, which is why it must comply at the outset with the requirements of the Rules” [2004] QB, at 723F, para 51. Article VI caters for an exceptional situation and gives no aid to the argument that a straight bill of lading dealing with ordinary commercial shipments would fall outside the international minimum standards envisaged by the Rules.
The question is whether a straight bill of lading triggers the application of the Rules, that is the provision that the Rules are only engaged in respect of contracts of carriage “covered by a bill of lading or any similar document of title”. Before the adoption of the Hague Rules the practice of issuing straight bills of lading was known, and such documents were described and treated as bills of lading. For the United Kingdom this proposition is made good by the decision of the Privy Council in C P Henderson & Co v Comptoir d’Escompte de Paris (1873) LR 5 PC 253, 259-260. In the United States the straight bill of lading was sufficiently recognised to be regulated by the Pomerene Bills of Lading Act 1916; see the judgment of Rix LJ, paras 47 and 48, at 721F-722A. In continental legal systems the straight bill of lading was well known and treated as a bill of lading: Tiberg, Legal Qualities of Transport Documents (1998) 23 Mar. Law 1 and Treitel, The Legal Status of Straight Bills of Lading, (2003) 119 LQR 608. It is true, of course, that the vast preponderance of transactions took place on the basis of order bills of lading. But it is a matter of contextual significance that straight bills of lading were in use before the Hague Rules were adopted. The travaux préparatoires of the Hague Rules are plainly inconclusive and cannot be used to determine the intentions of the framers on the precise question before the House. But it is a fair inference that the framers of the Hague Rules could not have been unaware of the relatively widespread mercantile use of straight bills of lading at that time. If it had been intended to exclude these bills of lading, special provision to that effect would surely have been made. Instead the gateway to the application of the Hague Rules was expressed in the wide and general terms of the existence of a bill of lading or any similar document of title.
The very words in question – “bills of lading or any similar document of title” – are words of expansion as opposed to restriction. They postulate a wide rather than narrow meaning. The attempt by the carriers to treat those words as importing a restrictive meaning of a conforming document under article I(b) involves a distortion of the plain language. It also reveals a preoccupation with notions of domestic law regarding documents of title which ought not to govern the interpretation of an international maritime convention. Instead the Rules must be construed by reference to “broad principles of general acceptation” appropriate to the international mercantile subject matter: see Stag Line v Foscolo Mango & Co [1932] AC 328, at 350. This view is reinforced if one considers the French text of the 1924 Hague Rules, which was at the time the authoritative version of the Rules: Pyrene v Scindia [1954] 2 QB 402, at 421, per Devlin J. The French text refers in article I(b) to a “contrat constaté par un connaissement ou par tout document similaire formant titre pour le transport des merchandises par mer …”. It contains no reference to the English concept of a ‘document of title’ at all. Instead it focuses on the right to possession of the goods vesting in the holder of the document. This makes it singularly inappropriate to invoke the meaning of ‘document of title’ at common law. But even the English text is more consistent with an interpretation of article I(b) which treats straight bills of lading as included rather than excluded.
The attestation clause expressly provides that “One of the bills of lading must be surrendered duly endorsed in exchange for the goods or delivery order.” The carrier argued that the words “duly endorsed” signify that this provision is inapplicable to a straight bill of lading. I would reject this argument. The words “duly endorsed” merely indicate that the bill of lading must be endorsed if appropriate or as may be necessary to perform the right of the presenting party to claim delivery. In any event, the issue of a set of three bills of lading, with the provision “one of which being accomplished, the others to stand void” necessarily implies that delivery will only be made against presentation of the bill of lading. In my view the decision of the Court of Appeal of Singapore in Voss vAPL Co Pte Ltd [2002] 2 Lloyds LR 707 at 722 that presentation of a straight bill of lading is a requirement for the delivery of the cargo is right. A connected point is that the logic of the carrier’s position is that some standard terms on the reverse side of the bill of lading must be deemed to be inapplicable. That too is not how traders, bankers and insurers would understand a straight bill of lading.
The carrier tried to equate the function of a straight bill of lading with that of a sea waybill. In Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed, 2000, edited by Leo D’Arcy and others, a sea waybill is described as follows (paras 15-033, at p 281):
“A sea waybill is a non-negotiable transport document and its great advantage is that its presentation by the consignee is not required in order for him, on production of satisfactory identification, to take delivery of the goods, thus avoiding delay both for him and the carrier where the goods arrive before the waybill. It is not a document of title but contains, or is evidence of, the contract of carriage as between the shipper and carrier in that it incorporates the standard terms of the carrier on its face. However, unlike a bill of lading, these terms are not detailed on the reverse of the waybill which is blank. A waybill is usually issued in the “received for shipment” form but may, like a bill of lading, be notated once the goods have been loaded.”
The suggested comparison is plainly unrealistic. In the hands of the named consignee the straight bill of lading is his document of title. On the other hand, a sea waybill is never a document of title. No trader, insurer or banker would assimilate the two. The differences between the documents include the fact that a straight bill of lading contains the standard terms of the carrier on the reverse side of the document but a sea waybill is blank and straight bills of lading are invariably issued in sets of three and waybills not. Except for the fact that a straight bill of lading is only transferable to a named consignee and not generally, a straight bill of lading shares all the principal characteristics of a bill of lading as already described.
Moreover, no policy reason has been advanced by the carrier why the draftsmen of the Hague Rules would have wanted to distinguish between a named consignee who receives an order bill of lading and a named consignee who receives a straight bill of lading. There is simply no sensible commercial reason why the draftsmen would have wished to deny the CIF buyer named in a straight bill of lading the minimum standard of protection afforded to the CIF buyer named in an order bill of lading. The importance of this consideration is heightened by the fact that straight bills of lading fulfil a useful role in international trade provided that they are governed by the Hague-Visby Rules, since they are sometimes preferred to order bills of lading on the basis that there is a lesser risk of falsification of documentation.
On a broader footing it is apparent that the interpretation advanced by the carrier depends on fine and technical distinctions and arguments. Traders, bankers and insurers would be inclined to take a more commercial view of straight bills of lading. This view is supported by Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed, 2000, at 276.
The academic response to the decision of the Court of Appeal is also important. Professor Sir Guenter Treitel QC, The Legal Status of Straight Bills of Lading, (2003) 119 LQR 608, at 611) observed about the Court of Appeal decision that “there seems to be no good policy reason for distinguishing between straight and order bills, so that one can express one’s respectful agreement with the actual decision that the Hague-Visby Rules apply to both kinds of bill alike”. Professor Charles Debattista, Straight Bills Come In From the Cold – Or Do They?, Lloyd’s List 23 April 2003, at 6, also welcomed the decision.
It is common ground that the Carriage of Goods by Sea Act 1992 treats straight bills of lading as sea waybills. That assumption comes from the view of the Law Commission to that effect: The Law Commission Report No 196, Rights of Suit in Respect of Carriage of Goods by Sea, paras 2.50 and 4.10-4.12. The 1992 Act was enacted three years after the contract of carriage in this case came into existence. Moreover, and more fundamentally, section 5(5) of the 1992 Act specifically provides that it will not affect the Hague-Visby Rules. The terms of the 1992 Act cannot alter the proper construction of article I(b) of the Rules.
VII Conclusion
I found the analysis of Rix LJ in his comprehensive judgment entirely convincing. I would affirm it.
VIII Disposal
For these reasons, as well as the reasons given by my noble and learned friends, Lord Bingham of Cornhill and Lord Rodger of Earlsferry, I would dismiss the appeal.
LORD RODGER OF EARLSFERRY
My Lords,
In 1989 the appellants, Mediterranean Shipping Company SA (“MSC”), contracted with Coniston International Machinery Ltd (“Coniston International”) to carry four containers of printing equipment from Durban to Felixstowe and onward to Boston. The respondents, J I MacWilliam Company Inc (“MacWilliams”), a company which specialises in supplying printing and similar equipment, were to be the consignees. On 18 December 1989 MSC issued a set of three documents, described on their face as bills of lading. The Consignee box on the document contained the words “Consignee: (B/L not negotiable unless ‘ORDER OF’)”. The box was completed with the name and address of MacWilliams and with nothing more. The effect was, accordingly, that the “B/L” was “not negotiable”.
In these circumstances, as my noble and learned friend, Lord Bingham of Cornhill, has explained more fully, the contention for MSC is that the Hague-VisbyRules did not apply to the contract of carriage since it was not “covered by a bill of lading or any similar document of title” in terms of article I(b) of those Rules. That article is identical to article I(b) in the Hague Rules, which were adopted in the Brussels Convention for the Unification of Certain Rules of Law relating to Bills of Lading (1924) (“the Convention”). As presented to the House, therefore, in substance the appeal turns on the proper interpretation of article I(b) of the Hague Rules as embodied in the Convention.
In the official English translation, article I(b) of the Convention provides:
“‘Contract of carriage’ applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bills of lading or any similar document as aforesaid issued under or pursuant to a charterparty from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.”
In fact, however, the Convention was drafted in French and the parties signed the French text (Treaty Series 17 (1931)). In that text article I(b) provides:
“‘Contrat de transport’ s’applique uniquement au contrat de transport constaté par un connaissement ou par tout document similaire formant titre pour le transport des marchandises par mer; il s’applique également au connaissement ou document similaire émis en vertu d’une charte-partie à partir du moment où ce titre régit les rapports du transporteur et du porteur du connaissement.”
(The version of the text on which both sides relied at the hearing contained an obvious misprint, “pour” instead of “par” before “tout document”.) As Devlin J held in Pyrene v Scindia [1954] 2 QB 402, 421, if there is an ambiguity, it is permissible to consult the French text in case it sheds light on the meaning.
In the present case the goods were to be transported by sea. Therefore, in order to succeed, MSC must show that the document which they issued to Coniston International was not, in terms of article I(b) of the Convention, either “a bill of lading” or “any similar document of title”. The purpose of the Hague Rules was to provide a set of provisions to regulate the terms on which goods were carried. More particularly, as explained in the Introductory Notes in Appendix IV to the twelfth (1925) edition of Scrutton on Charterparties, the aim is to protect third parties to the contract of carriage, including consignees, who may come to be bound by the terms in that contract without having had any real opportunity of examining them or of assessing the value of the security it affords. The Rules were therefore designed to incorporate certain, reasonable, standard provisions into the contracts of carriage to which they applied.
The Rules applied, first and foremost, to contracts of carriage covered by a bill of lading. Plainly, however, there was a risk that one or other of the parties might try to avoid the application of the Rules by using some document which, though otherwise serving much the same practical purposes from his point of view, was not actually a bill of lading. The purpose of adding the words “or any similar document of title” in article I(b) was clearly to frustrate any attempt of this kind by extending the range of the definition so that it applied not only to a contract of carriage covered by a bill of lading but also to a contract of carriage covered by “any similar document of title”. In short, these words were not included in order to cut down the range of contracts to which the Rules apply by narrowing the class of “bills of lading” as understood in commercial circles; they were intended, rather, to extend that range by including contracts covered by any document of title that is similar to a bill of lading.
The first question, therefore, is whether the document issued on behalf of MSC was a bill of lading, even though it was not transferable. I have no doubt that it was. Even as a matter of initial impression, MSC’s contention that their document was not a bill of lading is surprising, given the contents of their own form. According to its printed terms, the default position is that the document created by the form is not transferable: it becomes transferable only if the shipper chooses to add the words “or order” after the consignee. So, according to MSC’s contention, it is only if these words are added that their document becomes a bill of lading – even though the printed form describes it as a bill of lading, even though, also, the form uses the terminology of a bill of lading and even though it contains the kinds of clauses – including clauses placing obligations on the consignee – commonly found in a bill of lading. While appearances cannot, of course, be determinative, everything about this form suggests that the parties issuing or receiving it, whether or not the words “or order” were added, would regard the document as a bill of lading.
Since the words “or order” were not added in this case, if the document constituted a bill of lading it was not one for goods to be delivered “to order or assigns”. In this respect it differed from the paradigm bill of lading which the jury in Lickbarrow v Mason (1787) 2 TR 63; (1794) 5 TR 683 held to be negotiable, ie transferable. But a bill which provides for the delivery of goods to a named consignee simpliciter is still a bill of lading – even though of an unusual kind. It is often referred to as a “straight bill of lading”.
In the fifth edition of Abbott’s Treatise of the Law relative to Merchant Ships and Seamen (1827), the last for which he was responsible, Lord Tenterden said, at p 383, “The bill of lading in all its usual forms contains the word ‘assigns’….” The author does not exclude the possibility of there being bills of lading, in an unusual form, which do not contain the word “assigns”. Not surprisingly, however, the form of bill of lading which he set out, at pp 214-215, prescribed that the goods were to be delivered to Barcelona “unto E.F. merchant there, or to his assigns.” A variant which Lord Tenterden envisaged, at p 216, was for delivery “unto order, or assigns…..” On the other hand, when Bell set out the uniform British form of bill of lading, originally with a supposed date of 1820, it did not include the words “order or assigns”: Commentaries on the Law of Scotland: third edition, 1821, vol I, p 453 note 3; seventh edition, 1870, vol I, p 590 note 5. He appears to have envisaged that the blank could have been filled up simply “to a particular person as consignee”: third edition, vol I, at p 454; seventh edition, vol I, at p 591. These authorities suggest that, while it would have been highly unusual, to say the least, there could have been a valid bill of lading for delivery to a consignee simpliciter.
The decision of the Privy Council, some fifty years later, in Henderson & Co v The Comptoir d’Escompte de Paris (1873) LR 5 PC 253 tends to confirm that conclusion. Sir Robert Collier records, at p 260:
“It has been argued that, notwithstanding the omission of these words, this bill of lading was a negotiable instrument, and there is some authority at nisi prius for that proposition; but, undoubtedly, the general view of the mercantile world has been for some time that, in order to make bills of lading negotiable, some such words as ‘or order or assigns’ ought to be in them. For the purposes of this case, in the view their Lordships take, it may be assumed that this bill of lading was not a negotiable instrument.”
Leaving aside the unidentified nisi prius decisions, the fact that, by 1873, the mercantile world had reached a general view on the point shows that the question of the effect of the omission of the words “order or assigns” must have been discussed. This suggests also that the issue was not entirely academic – even though, on the facts of the particular case, the Board did not reach any view on whether the words had been missed out deliberately.
What matters for present purposes is that the mercantile community had been discussing whether the inclusion of the words “order or assigns” was necessary to make a bill of lading negotiable – not whether their inclusion was necessary for the document to count as a bill of lading. The general view of the mercantile world, as recorded by the Privy Council, had come to be that without these words the bills of lading were not negotiable – but, as Sir Robert Collier’s formulation shows, they were regarded none the less as bills of lading.
This decision of the Privy Council was accepted without adverse comment in subsequent editions of Abbott’s Treatise: for instance, in the fourteenth edition (1901), p 843 note (u). Not surprisingly, also, in a passage that goes back to the first edition, Scrutton on Charterparties, (twentieth edition (1996)), p 184, Article 94, envisages that
“goods shipped under a bill of lading may be made deliverable to a named person, or to a name left blank, or ‘to bearer’, and in the first two cases may or may not be made deliverable to ‘order or assigns’.”
The author and his editors have thus consistently accepted that, where goods are made deliverable to a named person but not to “order or assigns”, the bill is a bill of lading. Admittedly, when eventually confronted with such a bill of lading in Thrige v United Shipping Company Ltd (1924) 18 Ll L Rep 6, even Scrutton LJ himself was uncertain about one particular aspect of its operation. But neither he nor the other members of that powerful Court of Appeal suggested that the document in question was anything other than a bill of lading. To bring the matter up to date, the decision of the Court of Appeal in Singapore in Peer Voss vAPL Co Pte Ltd [2002] 2 Lloyd’s Rep 707 likewise proceeded on the basis that a straight bill of lading was indeed a bill of lading, the question being whether a bill of that kind had to be presented to obtain delivery of the goods.
My Lords, once it is seen that a bill of lading for delivery to a named consignee simpliciter is indeed a bill of lading, it can also be seen that the contract of carriage in this case was covered by a “bill of lading”. Therefore, if the Hague Rules are not to apply to this contract, it can only be because the term “bill of lading” in article I(b) is to be given a special, narrow, meaning which does not reflect commercial usage. In The Happy Ranger [2001] 2 Lloyd’s Rep 530, 539, at para 28 Tomlinson J did indeed suggest, obiter, that the term “bill of lading” in article I(b) should not be interpreted as including straight bills of lading. In reversing his decision, on other grounds, the Court of Appeal reserved their opinion on the point but expressed doubt about statements to a similar effect in some textbooks: [2002] 2 Lloyd’s Rep 357, 363, at paras 30-31, per Tuckey LJ, and 367, at para 49, per Rix LJ. Since, however, for the reasons I have already given, there is no justification in the language or policy of the Hague Rules to narrow the class of bills of lading in article I(b), I would respectfully reject Tomlinson J’s suggested approach. Therefore, the contract in this case falls within the definition of a “contract of carriage” in article I(b) of the Hague Rules.
That is sufficient to dispose of the appeal. Consideration of some of the wider arguments presented to the House tends, however, to confirm this conclusion.
At the time of the events in this case the Bills of Lading Act 1855 was still in force. Mr Rainey QC submitted, however, that section 1 of the Act did not transfer any rights in favour of, or against, MacWilliams as consignees, since the Act applied only to consignees under a transferable bill of lading. The basis of that submission was the opening words of the preamble to the Act:
“Whereas, by the custom of merchants, a bill of lading of goods being transferable by indorsement, the property in the goods may thereby pass to the indorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner; and it is expedient that such rights should pass with the property….”
These words might lead the reader to expect that the enactment which followed would be limited to situations where the bill of lading was transferable by endorsement and where an endorsee was involved. Section 1 is, however, in significantly wider terms:
“Every consignee of goods named in a bill of lading, and every indorsee of a bill of lading, to whom the property in the goods therein mentioned shall pass upon or by reason of such consignment or endorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.”
The section specifically covers “every consignee of goods named in a bill of lading…” as well as “every indorsee of a bill of lading”. The inclusion of both categories shows clearly that the legislature was not confining the enactment to the particular mischief identified in the preamble. The preamble cannot, therefore, be used to qualify or cut down the enactment: Powell v Kempton Park Racecourse Co Ltd [1899] AC 143, 157 per Earl of Halsbury LC.
It was in any event necessary for the 1855 Act to apply to consignees as well as to endorsees if many of the problems confronting the courts were to be put right. The parties to the contract of carriage were the shipper and the carrier. The consignee, or any endorsee of the bill of lading, was a third party and, in English law at least, had no rights under the contract, even though he might be the owner of the goods. So, if these were lost or damaged, or if the carrier failed to deliver them, difficult questions of both fact and law arose. Depending on the circumstances, the shipper who had the contractual rights could be said to have no interest in the goods, while the consignee might have an interest in the goods, but no right to sue under the contract. Sir William Shee, the editor of the seventh edition of Abbott’s Treatise (1844), described the prevailing situation in this way, at p 325:
“There is often some difficulty in deciding to whom the master and owners are responsible on their contract evidenced by the bill of lading, and whether actions for loss or injury, occasioned by their negligence or misconduct, should be brought by the consignor or consignee. No rule of general application can be laid down for the solution of this difficulty; but it will always be important to consider in whom the right of property, and sometimes in whom the right of possession, was vested, at the time of the breach of contract, or neglect of duty which is complained of.”
With studied understatement, he later observed, at p 337, that the results of the cases were not, in all respects, easily reconcilable.
Many of the difficulties can be seen in the speech of Lord Cottenham LC in Dunlop & Co v Lambert (1839) Macl & Rob 663. The case concerned a puncheon of whisky which the shipowners, Lambert and others, had agreed to carry from Leith to Newcastle. In terms of the bill of lading they were to deliver it to Mr Mathew Robson “or to his assigns”. During a storm, for safety reasons, the whisky was thrown overboard. The shippers sued the shipowners for the loss of the whisky. The defenders objected that, in the circumstances, the shippers had no title or interest to sue: any action should have been raised by the consignee. After an elaborate examination of the authorities on the point, the Lord Chancellor held that the Lord President had misdirected the jury by withdrawing from their consideration two questions of fact, relating to the incidence of risk and to the existence of a special contract sufficient to enable the shippers to recover. In part at least, the 1855 Act was designed to make it unnecessary to explore complex issues of this kind merely in order to discover who could sue on the contract of carriage. It was therefore essential for the Act to apply to consignees if it was to achieve its purpose. Nor is there anything in the language, or in the purpose behind the Act, which would justify confining section 1 to consignees under a transferable bill of lading.
The 1855 Act was passed during that long period when the opinion of Buller J in Lickbarrow v Mason (1787) 2 TR 63, that transfer of a bill of lading always transfers the property in the goods, held sway. Indeed the terms of section 1 reflect that doctrine. But it was decisively rejected by this House in Sewell v Burdick (1884) 10 App Cas 74, when their Lordships adopted the line of reasoning favoured by Bowen LJ in the Court of Appeal, (1884) 13 QBD 159, 170-171. As that decision made clear, whether or not the transfer of a bill of lading transfers the property in the goods is always a question of fact, with the answer depending on the nature of the agreement under which the transfer takes place. In this case the relevant facts about the transaction between Coniston International and MacWilliams have not been established or agreed. I therefore say no more than that, if the consignment of the goods named in the bill of lading transferred the property in the goods to MacWilliams, the relevant rights and liabilities of Coniston International, as shippers, will also have been transferred to them under section 1 of the 1855 Act.
On the assumption that the rights and liabilities of the shippers under the contract of carriage have indeed been transferred to MacWilliams as consignees of the goods named in this bill of lading, they are just as much in need of the protection of the Hague Rules against unduly onerous terms in the contract of carriage as a consignee – or endorsee – under a transferable bill of lading. In this context, the negotiability or transferability of the bill of lading is irrelevant – as indeed is its status as a presentation document. In short, like Jacob J in the Court of Appeal [2004] QB 702, 754, at para 153, I can see no rational reason for giving the protection of the Rules to a consignee under a transferable bill but not to a consignee under a straight bill. For that reason, it makes sense that article I(b) of the Hague Rules has been worded in a way that does not exclude – and so includes – contracts of carriage that are covered by a bill of lading which is not transferable.
On the approach that I have taken, it is unnecessary to decide what is meant by the words “any similar document of title” in article I(b). But, since the point was argued and is of general importance, I include some tentative observations on this aspect of the construction of article I(b).
First, article I(b) tells the reader to what kinds of contract of carriage the Rules apply. It is concerned with types of contract of carriage between shippers and carriers, not with relations between shippers and consignees.
Secondly, as Mr Rainey submitted, the Hague Rules apply only to carriage of goods by sea. For that reason the clause “in so far as such document relates to the carriage of goods by sea” must modify both “a bill of lading” and “any similar document of title”. Similarly, in the French text the words “formant titre pour le transport des marchandises par mer” must modify both “un connaissement” and “tout document similaire”.
Thirdly, in interpreting article I(b), section 4 of the Canadian Water-Carriage of Goods Act 1910 affords no real help, if only because the relevant phrase in that section is “any bill of lading or similar document of title to goods”. The last two words are not found in article I(b).
Next, even though their meaning would then be unclear, the words “document of title” could stand on their own in the English text. Indeed, that is how they are usually read. By contrast, it is plain that the words “tout document similaire formant titre” in the French text are intended to be read along with the following words “pour le transport des marchandises par mer”. That is to say, the alternative to a “connaissement … formant titre pour le transport des merchandises par mer” is “tout document similaire formant titre pour le transport des marchandises par mer”. So the alternative document which the French text describes is simply one that entitles the holder to have the goods carried by sea – and, obviously, to have them delivered to the appropriate person at the end of the voyage. Nothing is said about the document having any effect in relation to the title to the goods, in a property sense. The French text would therefore suggest that the words “document of title” in the English version should be read along with the qualifying words “in so far as such document relates to the carriage of goods by sea” and should be understood as applying to any document that entitles the holder to have the goods carried by sea. This would be to give the words a broad interpretation but, since they are designed to prevent parties from circumventing the Rules by devising different forms of shipping document, such an interpretation would not be inappropriate.
Finally, that interpretation appears to derive support from the second part of article I(b), relating to contracts of carriage covered by “bills of lading or any similar document as aforesaid issued under or pursuant to a charterparty”. When such a document of title is issued, the Rules apply only from the moment when it “regulates the relations between a carrier and a holder of the same.” This suggests that the crucial characteristic of the “document of title” in both parts of article I(b) is that it regulates the relations between the carrier and the holder.
If article I(b) were to be interpreted along these lines, the document in this case, if not a bill of lading, would be a “similar document of title”. On that viewalso, the Hague Rules would apply.
As I have already explained, I am, however, satisfied that the document which MSC issued to Coniston International was a bill of lading. The contract of carriage was accordingly one which fell within the terms of article I(b) of the Hague Rules and of the Hague-Visby Rules. On that basis, and for the reasons given by my noble and learned friends, Lord Bingham of Cornhill and Lord Steyn, I too would dismiss the appeal.
LORD BROWN OF EATON-UNDER-HEYWOOD
My Lords,
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Bingham of Cornhill, Lord Steyn and Lord Rodger of Earlsferry. For the reasons they give, with which I agree, I too would dismiss this appeal.
Rights Of Suit In Respect Of Carriage Of Goods By Sea [1991] SLC 130 (Report) (19 March 1991)
URL: http://www.bailii.org/scot/other/SLC/Report/1991/130.html
Cite as: [1991] SLC 130 (Report)
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THE LAW COMMISSION
and
THE SCOTTISH LAW COMMISSION
(LAW COM No 196)
(SCOT LAW COM No 130)
RIGHTS OF SUIT IN RESPECT OF CARRIAGE
OF GOODS BY SEA
Laid before Parliament by the Lord High Chancellor and the Lord Advocate
Pursuant to section 3(2) of the Law Commissions Act 1965
Ordered by The House of Commons to be printed
19 March 1991
LONDON: HMSO
£8.85 net
HC 250
The Law Commission and the Scottish Law Commission were set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law.
The Law Commissioners are:
The Honourable Mr Justice Peter Gibson, Chairman
Mr Trevor M Aldridge
Mr Jack Beatson
Mr Richard Buxton, QC
Professor Brenda Hoggett, QC
The Secretary of the Law Commission is Mr Michael Collon and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ.
The Scottish Law Commissioners are:
The Honourable Lord Davidson, Chairman
Dr E M Clive
Professor P N Love, CBE
Sheriff I D Macphail, QC
Mr W A Nimmo Smith, QC
The Secretary of the Scottish Law Commission is Mr K F Barclay and its offices are at 140 Causewayside, Edinburgh EH9 1PR.
RIGHTS OF SUIT IN RESPECT OF CARRIAGE OF
GOODS BY SEA
CONTENTS
Para
PART I: INTRODUCTION 1.1
Background 1.2
Working Paper No 112 and Discussion Paper No 83 1.3
Consultation 1.5
The structure of this Report 1.9
Two approaches to reform 1.10
Acknowledgements 1.11
PART II: THE SEPARATION OF CONTRACTUAL RIGHTS FROM THE PASSING OF PROPERTY 2.1
A. Problems with the Present Law 2.1
B. The Inadequacy of Existing Techniques 2.4
(i) The wide interpretation of section 1 2.5
(ii) Implied contract 2.11
(iii) Assignment 2.13
(iv) Claims in tort 2.14
C. Insurance 2.15
D. Our Recommendations for Reform 2.16
(i) Introduction 2.16
(ii) The three main approaches to reform of Section 1 of the Bills of Lading Act 1855 2.18
Option 1 2.18
Option 2 2.19
Option 3 2.21
Recovery by those who have not suffered loss 2.24
Pledgees and others holding the bill as security 2.30
Rights of the shipper and intermediate holders on risk 2.32
Indorsement after delivery 2.42
Claims in tort 2.45
Multimodal transport documents 2.46
Definition of bill of lading 2.50
Bills of lading for goods on a chartered ship 2.51
PART III: THE SEPARATION OF CONTRACTUAL RIGHTS AND LIABILITIES 3.1
(a) Introduction 3.1
(b) The present law 3.2
(c) Arguments against the bill of lading holder being subject to liabilities 3.5
(d) Arguments in favour of the bill of lading holder being subject to liabilities 3.9
(e) Our recommendations for reform 3.15
Liabilities of the original shipper 3.23
PART IV: FALSE STATEMENTS IN A BILL OF LADING 4.1
PART V: SEA WAYBILLS AND SHIP’S 5.1
DELIVERY ORDERS
(a) Introduction 5.1
(b) Documents giving a right of delivery against the carrier 5.4
(c) Sea Waybills 5.6
(i) Rights of disposal 5.15
(ii) Liabilities of the consignee 5.21
(iii) Rights of the shipper 5.23
(iv) Liabilities of the shipper and the position of the owner 5.24
(d) Ship’s Delivery Orders 5.25
PART VI: DOCUMENTS FORMING PART OF AN ELECTRONIC RECORD 6.1
PART VII: SUMMARY OF RECOMMENDATIONS 7.1
Note of Partial Dissent by E M Clive Dissent
APPENDIX A: Draft Carriage of Goods by Sea Bill Appendix A
APPENDIX B: List of individuals and organisations who commented on Working Paper No 112 and Discussion Paper No 83 Appendix B
APPENDIX C: List of participants at two seminars held in connection with Working Paper No 112 Appendix C
RIGHTS OF SUIT IN RESPECT OF CARRIAGE OF
GOODS BY SEA
Summary
In this joint report the Law Commission and the Scottish Law Commission examine the law relating to the rights of suit of those interested in contracts of carriage of goods by sea. They recommend that the holder of a bill of lading should be able to sue on the bill regardless of the passing of property in the goods to which the bill relates. They also recommend that reform should cover sea waybills, ship’s delivery orders and transactions effected by electronic data interchange (EDI). The report contains a draft Bill to give effect to the recommendations.
THE LAW COMMISSION
AND
THE SCOTTISH LAW COMMISSION
(Item 1 of the Fourth Programme of the Law Commission)
(Item 2 of the First Programme of the Scottish Law Commission)
RIGHTS OF SUIT IN RESPECT OF CARRIAGE OF GOODS BY SEA
To the Right Honourable the Lord Mackay of Clashfern, Lord High Chancellor of Great Britain, and the Right Honourable the Lord Fraser of Carmyllie, QC, Her Majesty’s Advocate
Part 1 INTRODUCTION
1.1 In this Report, we consider the law relating to the rights of suit of those concerned with contracts of carriage of goods by sea and make recommendations for its reform. A draft Bill to implement these recommendations appears in Appendix A.
Background
1.2 In April 1985 the Law Commission was approached by representatives of one of the leading international commodity trade associations who asked it to consider examining the law relating to the rights of purchasers of goods forming party of a larger bulk which are carried by sea. The event which prompted the approach was a case decided according to English law by the Commercial Court in Rotterdam, The Gosforth.[1] There have also been several cases decided in recent years by the English courts concerning the rights of buyers of part of a larger bulk.[2] The Law Commission decided to carry out preliminary research in order to establish the extent of any problems which might occur in practice. In May 1987 a questionnaire was prepared which was sent to various commodity and other trade associations for circulation to their members. More than 100 replies were received from traders within the United Kingdom and elsewhere in Europe.
Working Paper No 112 and Discussion Paper No 83
1.3 In June 1989, the Law Commission published a Working Paper on Rights to Goods in Bulk,[3] and in August 1989 the Scottish Law Commission published a Discussion Paper on Bulk Goods.[4] Both sought views on possible reforms to the law relating to the rights of those who buy goods which form part of a larger bulk. Within this limited context, we identified two main problems. First, if the seller becomes insolvent before property has passed, a buyer who has paid for goods and even one who has received a document of title will merely have the rights of general creditors, since section 16 of the Sale of Goods Act 1979 prevents property from passing before goods have been ascertained. Secondly, section 1 of the Bills of Lading Act 1855 stipulates that every consignee of goods named in a bill of lading and every indorsee of a bill of lading may assert contractual rights of action against the carrier of the goods, but only if property in the goods passes upon or by reason of the consignment or indorsement. The requirement of section 16 of the Sale of Goods Act means that property in bulk goods will not pass before discharge of the goods, that is, after the consignment/indorsement. Hence, the buyer of goods may be without a remedy against the carrier in respect of loss of, or damage to, cargo.
1.4 The Working Paper convassed two solutions, not necessarily mutually exclusive. The first was to amend section 16 of the Sale of Goods Act 1979, so that parties could contract so as to pass property in goods before the physical severance of the buyer’s share from the bulk. The second was to amend section 1 of the Bills of Lading Act 1855 along one of two possible lines. One would allow the consignee/indorsee to succeed to the shipper’s rights and liabilities as against the carrier where property would have passed to the consignee/indorsee but for the fact that the goods formed part of a larger bulk.[5] The other would have removed all reference to the passing of property as a prerequisite for the acquisition of contractual rights and liabilities by the consignee/indorsee.[6] Similar options were canvassed in the Scottish Discussion Paper, although it tended to favour the more general solution.[7]
Consultation
1.5 Working Paper No 112 and Discussion Paper No 83 confined discussion to rights of suit in respect of bulk goods carried by sea, for the reason that, when the matter was first drawn to the attention of the Law Commission in 1985, it was told that this was the real area of concern for many commodity traders. In addition, it was felt at the time that, if the project were to be limited to bulk goods, there was a real prospect of a simple and uncontroversial reform being enacted speedily. However, it became apparent during the consultation period that, if we were to tackle all the main problems caused by the present law, reform would have to go beyond rights in respect of goods forming part of a larger bulk and deal with the problems of rights of suit generally.
1.6 The general tenor of the evidence of consultants can be summarised as follows. First, virtually all consultants were of the view that some change in the law was necessary. Secondly, while the majority of consultants would welcome a change in the law which gave to the buyer of part of a bulk cargo a greater degree of protection than he now has where the seller becomes insolvent, this was perceived to be a problem of much less urgency than the problems faced by the buyer of goods who needs to assert remedies against the carrier in respect of loss of, or damage to, the goods during the course of a voyage. Thirdly, almost all consultants said that section 1 of the Bills of Lading Act should be amended so that the holder of a bill of lading can assert contractual rights under the contract of carriage, notwithstanding that he may not have acquired property “upon or by reason of” the consignment or indorsement, or at all. Fourthly, although the majority of consultants would welcome a reform of section 16 of the Sale of Goods Act so as to enable parties to contract for property in part of a bulk to pass before severance of the goods from the bulk, opinion on the matter was by no means unanimous. Not only was this regarded as a less urgent matter than reform of the Bills of Lading Act, but it was also felt that not all of the consequences of such a reform had been worked out, particularly in regard to how a reform would fit into the recent insolvency legislation.
1.7 The most important message we received from consultants was that the scope of our project was too narrow. The Bills of Lading Act 1855 allows consignees and indorsees to sue the carrier on the contract of carriage only if property passes “upon or by reason of” such consignment or indorsement. The Working Paper was primarily concerned with the inability of buyers of part of a bulk cargo to acquire rights of suit where the property passes after the consignment or indorsement of the bill of lading.[8] Since the publication of the Working Paper, the Court of Appeal’s decision in The Delfini,[9] and the consultation process, have confirmed that there are other serious title to sue problems.[10] The most important arise where the property in the goods passes before, or independently of, the consignment/indorsement; where property does not pass at all, as where the goods are lost but where the buyer is on risk; and where a document other than a bill of lading is used, such as a sea waybill or a ship’s delivery order. The clear message from consultants was that it would be wrong to confine reform to bulk goods.
1.8 We therefore decided, in the first instance, to consider the reform of the law relating to rights of suit in respect of carriage by sea, which principally involves the Bills of Lading Act 1855. Such a reform is widely perceived as being urgently required and long overdue.[11] Reform of section 16 of the Sale of Goods Act 1979 is a problem of less urgency and on which there is not the same general agreement as to what is required by way of reform. We decided to defer the question of reform of section 16 until we completed our consideration of rights of suit in respect of carriage by sea, although we now intend to return to that issue.
The structure of this report
1.9 This report has the following sections, including our recommendations for reform:
Part II – problems arising from the linking of contractual rights with the passing of property.
Part III – problems arising from the linking of contractual rights and liabilities.
Part IV – problems in respect of false statements in bills of lading.
Part V – problems relating to sea waybills and ship’s delivery orders.
Part VI – problems with paperless transactions, and the question of electronic data interchange (EDI).
Part VII – a summary of our recommendations for reform.
Appended to this report are:
A. A draft Bill which would give effect to our recommendations.
B. A list of those who commented on Working Paper No 112 and Discussion Paper No 83.
C. A list of participants at two seminars, for details of which see paragraph 1.11 below.
Two approaches to reform
1.10 This report is written mainly from the standpoint of English law, which is the governing law of the vast majority of commodity imports into Europe. Although Scottish law recognises as a general rule that third parties can have rights and can sue under contracts to which they are not privy, nevertheless the Bills of Lading Act 1855 applies both in England and in Scotland. Both Commissions consider it desirable that any replacement legislation should similarly so extend. Whilst we endeavoured to produce a unanimous Report, one of us has been unable to accede to all aspects of the approach adopted herein.[12] This no doubt reflects the fact that there are several respectable approaches to reform in this area of the law. Nevertheless, the approach taken by all the members of the Law Commission and the majority of the members of the Scottish Law Commission represents what we believe to be the most constructive way of reconciling the interests of all parties to a contract of sea carriage, in accordance with the dictates of good sense and commercial certainty.
Acknowledgements
1.11 We are grateful to all those who commented on our consultation papers. They are listed in Appendix B to this Report. We are also grateful to Sir Wilfrid Bourne, KCB, QC, who prepared an invaluable analysis of the consultation for us. We also derived much assistance from two seminars held to discuss issues which went beyond the ambit of the consultation papers. The first seminar was arranged by members of the chambers of Mr Anthony Diamond, QC (as he then was) and took place in December 1989. The second seminar was arranged by the Law Commission and took place at the Institute of Advanced Legal Studies in January 1990. We are grateful to all those who participated in these seminars. They are listed in Appendix C to this Report.
1.12 We would also like to express our particular thanks to several people: to our former colleague, Brian Davenport, QC, who initiated work on this project and who has continued throughout to give us the benefit of his expertise; to Lord Justice Lloyd; Mr Justice Hobhouse; Judge Diamond, QC; Dr F M B Reynolds, Fellow of Worcester College and Reader in Law in the University of Oxford; Professor G H Trietel, QC, Fellow of All Souls and Vinerian Professor of English Law in the University of Oxford; Dr Charles Debattista, Clyde & Co, Senior Lecturer in Commercial Law at the University of Southampton; Christopher Jones and Stephen Tricks, partners in Clyde & Co; Robert Howland, of Associated Container Transportation Services Ltd; John Richardson, of P & O Containers; Tony Scott, of European Grain & Shipping Ltd, and President of the Grain and Feed Trade Association (GAFTA); and Richard Faint, of André & Cie, all of whom have given generously of their assistance and advice at various stages of this project.
Part II THE SEPARATION OF CONTRACTUAL RIGHTS FROM THE PASSING OF PROPERTY
A. PROBLEMS WITH THE PRESENT LAW
2.1 The Bills of Lading Act 1855 was passed to remedy a defect arising from the doctrine of privacy of contract. The problem was that a buyer of goods, including one to whom a document of title had been transferred and thus who had constructive possession of the goods or even ownership, was unable to sue or be sued on a contract of carriage which had been made between the shipper and the carrier and to which he was not privy. Section 1 of the 1855 Act provides, in essence, that the transfer of a bill of lading also effects the transfer of the contract of carriage:
“Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment to endorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.”
2.2 Unfortunately, section 1 stipulates that the shipper’s contractual rights and liabilities will pass to the consignee/indorsee only if property passes “upon or by reason of” the consignment or indorsement.[13] Quite apart from cases where a document other than a bill of lading is used,[14] this requirement of section 1 causes difficulty whenever property either does not pass at all or passes independently of the transfer of the bill of lading and thus where the transfer of the bill is in no way causative of the passing of property. Cases have arisen where:
(a) The indorsee does not obtain full property in the goods, but only the special property of a pledgee. In Sewell v Burdick,[15] the House of Lords held that an indorsee who is a mere pledgee does not obtain the full or general property in the goods so as to be liable in an action by the shipowner for freight. While the policy of the decision undoubtedly reflects the undesirability of making banks and others holding the bill as security liable for freight and other charges, it also means that where the person holding the bill wishes to realise his security and take up the goods, he cannot sue the carrier under the 1855 Act. Instead, he would have to rely on an implied contract.[16]
(b) Property does not pass at all although the buyer is on risk.[17] This problem arose in The Aramis, HREF=’#note18′>[18] where in respect of one of the bills of lading there was no delivery at all and so no passing of property, and in The Aliakmon,[19] where property did not pass because of a reservation of the right of disposal.
(c) Property passes after consignment or indorsement. This will typically happen with sales involving bulk cargoes. Section 16 of the Sale of Goods Act 1979 prevents property passing before the goods have been ascertained, so that property will not normally pass until discharge of the vessel at the earliest. This arose in respect of one of the bills of lading in The Aramis, where short delivery was made of goods forming part of a larger bulk.
(d) Property passes before, or independently of, consignment or indorsement. This problem arose in The Delfini,[20] where the relevant indorsements took place eleven days after the completion of delivery and were in no way instrumental in transferring title.[21] We shall see below that The Delfini has important implications where, as is becoming increasingly common, particularly in the oil trade, there are long chains of sales contracts and comparatively short sea voyages.
2.3 The examples in (b), (c) and (d) above are all aspects of the same problem, namely that the buyer of goods on risk during the course of a sea transit, and to whom in the course of time a bill of lading is transferred, is unable to assert remedies against the carrier of the goods in respect of loss or damage. This is a serious defect of English law which defeats the legitimate expectations of those involved.[22]
B. THE INADEQUACY OF EXISTING TECHNIQUES
2.4 The Working Paper examined four possible avenues of recovery for the buyer in an international sale transaction: claims based on the so-called wide interpretation of section 1 of the Bills of Lading Act; claims under an implied contract; assignment; and claims in tort. There was virtually unanimous agreement amongst consultants with the view taken in the Working Paper[23] that existing techniques are of little use to the buyer who is on risk but to whom property does not pass in the way stipulated by the Bills of Lading Act.
(i) The wide interpretation of section 1
2.5 At the time that the Working Paper was published, there had been no definitive construction by an appellate court of section 1 of the Bills of Lading Act 1855. Two views had been advanced. There was a narrow view, according to which the phrase “upon or by reason of” meant that property in the goods must pass at the same time as the consignment or indorsement.[24] There was also a wide view, according to which it was sufficient if the property passed from the shipper to the indorsee under a contract in pursuance of which a bill of lading was indorsed in his favour.[25] Under this view, rights of suit would be transferred even where property passed before or after consignment or indorsement, providing that property passed at some stage. The Court of Appeal in The Delfini[26] has now rejected the wide view in favour of a via media. According to this view, the indorsee will be able to sue on the bill of lading even though the indorsement of the bill is not the immediate occasion of the passing of property, providing the act of indorsement plays an essential causal role in the chain of events by which title is transferred.[27]
2.6 Purchas L J said that an example where the indorsement of a bill of lading will not be simultaneous with the passing of property but where there will be a definite connection between the two sufficient to comply with the words “by reason of” in section 1, would be the case of the unascertained part of a larger bulk.[28] If this is correct, there is a definite improvement of the position of some buyers of bulk cargoes. It is not, however, a complete answer to the problem. It would be of no avail in cases such as The Delfini, where there was not a sale of part of a bulk, nor in those cases where the buyer of part of a bulk actually receives nothing at all, such as happened to one of the plaintiffs in The Aramis. HREF=’#note29′>[29]
2.7 The Delfini is a typical example of the unsatisfactory results which follow from the linking of the passing of property and the acquisition of contractual rights. It shows that acute problems can occur for cargo interests when short sea voyages are involved, where the normal shipping documents are frequently unavailable either to effect discharge from the ship or to be produced in exchange for payment. The facts were as follows. Sonatrach sold 100,000 tonnes of Algerian condensate on fob terms to Vanol, who sold 20/25,000 tonnes to Enichem, cif Gela in Italy, who in turn sold to their associates, the plaintiffs. Under Vanol’s contract with Enichem, payment was to be made either against shipping documents or a letter of indemnity in the event that the bills of lading were not available at the time of payment.[30] Enichem were also required to provide a bank guarantee no later than the date of the nomination of the vessel. On 30th July 1985, Vanol entered a voyage charterparty with the defendant shipowners, under which Vanol were allowed to instruct the defendants to discharge the cargo against Vanol’s letter of indemnity if the bills of lading were not available at the time of discharge. On 2nd August the vessel was loaded in Algeria and a bill of lading was issued, naming Sonatrach as shipper. On 4th August, the vessel arrived at Gela and gave notice of readiness but did not berth until 7th August. When the vessel arrived, Vanol did not have the bills of lading which were still with the Algerian shippers, Sonatrach. Lacking the bill of lading, on 5th August Vanol issued two telexed letters of indemnity; one to the ship with instructions to deliver to Enichem without production of the bill of lading, and one to Enichem, with an invoice, who were paying for goods without having all of the documents. The ship discharged the goods between 7th and 9th August. On 12th August, Enichem paid Vanol against the letter of indemnity. On 20th August, Vanol’s bank received the original bills of lading indorsed in blank by the shippers, which were in turn forwarded to Enichem, thus cancelling the letter of indemnity. Enichem sued the shipowners, in respect of short delivery, under section 1 of the Bills of Lading Act 1855.
2.8 At first instance, Phillips J held that, once the ship had unloaded and sailed away, the contract of carriage was discharged by performance despite the incomplete delivery; thereupon the bill of lading ceased to be effective as a transferable document of title and hence no contractual rights were acquired by the transferee under the 1855 Act.[31] On appeal, the plaintiffs’ primary contention was that since delivery was to be made against bills of lading, the contract of carriage was not discharged by delivery against letters of indemnity. The Court of Appeal, however, held that the plaintiffs had no rights of suit under the Act because indorsement of the bill of lading to Enichem on 20th August did not play an essential causal part in the passing of the property which occurred at the latest on 12th August, which was when Enichem paid Vanol, and probably earlier, either on discharge on 9th August or when Vanol issued its telex invoice to Enichem on 5th August.
2.9 The case produced a most unsatisfactory result for several reasons. First, it meant that the final buyer, who bore the risk of loss/damage and actually suffered loss, could not assert contractual rights against the ship even though in due course he received a duly indorsed bill of lading, which, every party in the transaction no doubt assumed, conferred rights of action on the holder. The requirement that the buyer can sue the ship only if there is an essential causal link between indorsement and the passing of property therefore defeats the expectations of the parties involved. Furthermore, it is the more unsatisfactory given that it was not at all clear when property passed. Mustill L.J.[32] thought that it was on 5th August (rendering of invoice from Vanol to Enichem), Woolfe L.J.[33] the 9th (discharge) or possibly the 12th (payment), Purchas L.J.[34] at the latest by the 9th and probably the 5th or, even earlier, when security for payment was given by Enichem’s bank. While on the facts they were all agreed that the indorsement[35] of the bill of lading was later than any of these dates, the fact that the Bills of Lading Act has the requirement at all is unsatisfactory.
2.10 The decision in The Delfini seriously weakens the bill of lading as a commercially useful document. Consultation revealed that it is commonplace in the oil trade, particularly where there are long chains of buyers and comparatively short ocean voyages, for title in entire cargoes to be transferred well ahead of transfer of the bill of lading, the ship reaching
its destination long before the documents.[36] Where the buyer makes payment against a letter of indemnity furnished by the seller, and where the carrier delivers the goods in return for a letter of indemnity, furnished by the person requesting delivery, the bill of lading becomes of minimal significance: it may be received, if at all, long after discharge. Nevertheless, the law still attaches crucial significance to the time of indorsement and the time that property passes. If bills of lading cease, by the end of the voyage, to be effective as documents capable of transferring contractual rights, and yet they consistently arrive after the goods, then the bill of lading is even further weakened as a docukent useful for dealing with goods in transit. In particular, all indorsements after the end of the voyage will not operate to transfer contractual rights to indorsees. The intention is that the shipping documents, including the bill of lading, will be passed down the chain until they reach the final buyer and thereby bring him into a contractual relationship with the carrier. Traders regard the transfer of the original bill of lading to the buyer as a virtual link in the sale transaction, even after completion of discharge. If this were not so, there would be no need for there to be an undertaking in letters of indemnity to pass on the bill of lading as soon as it is received.[37] Since the passing of the original bill of lading down the line remains important even after discharge, it is understandable that traders and bankers assume that contractual rights accompany the bill. This makes commercial sense when the shipper has been paid in full and thus has no interest in suing the carrier. Unfortunately, the law on this point no longer gives effect to reasonable commercial expectations.
(ii) Implied contract
2.11 In some circumstances, when a bill of lading is presented to the ship in order to obtain delivery of the goods at the discharge port, there may come into existence an implied contract between the holder of the bill of lading and the carrier, on bill of lading terms.[38] In Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd,[39] the shipowner was liable under such a contract[40] when the indorsee, a pledgee who was thus unable to sue under the 1855 Act, presented the bill of lading, paid the freight and took delivery of the goods. Nevertheless, as Staughton J. said at first instance in The Aliakmon,[41] the doctrine of Brandt v Liverpool is far more often pleaded than established by judicial decision. It was rejected on the facts of that case[42] because, inter alia, as a result of a reservation of the right of disposal, the buyers in tendering the bills of lading were acting only as agents of the sellers, so that there was no relationship between the shipowner and buyers on which to base an implied contract. There may also be difficulties where the buyer does not furnish consideration such as the payment of freight or demurrage, or where there is insufficient evidence from which to infer an intention on the parties to enter contractual relations.
2.12 In The Aramis, HREF=’#note43′>[43] where freight had been prepaid, the Court of Appeal held that no implied contact was to be found simply because the buyer presented the bill and took delivery of the goods. The parties were obliged to do this in any event,[44] and a contract could not be implied from conduct which was no more consistent with an intention to contract than with an intention not to contract.[45] In the light of The Aramis, it is doubtful whether an implied contract would be found where the ship sinks or it is known and accepted that he cargo in question is not on board on arrival at the discharging port.[46] The Working Paper[47] concluded that, while some of the problems associated with the 1855 Act are overcome if the buyer can present the bill of lading to the carrier in circumstances where an implied contract comes into existence on the terms of the bill, this mechanism must now be regarded as limited in its operation. There was wide agreement with this view from consultants. The finding of a Brandt v Liverpool contract has often involved an element of fiction, even detective work, although it provided an ingenious and commercially sensible method of filing in the gaps left by the Bill of Lading Act. In those cases where freight is prepaid and where the indorsee merely presents the bill and takes delivery of the goods, it will be very difficult to find an implied contract. Given that the Court of Appeal in The Aramistook a strict view of the requirements of offer, acceptance and contractual intention, leaving a new commercially workable solution to be provided by the legislature, the Brandt v Liverpool contract is clearly no substitute for legislation.[48]
(iii) Assignment
2.13 It was also convincingly argued by consultants that to require the seller to assign to the buyer his rights against the carrier was an unsatisfactory substitute for a reformed Bills of Lading Act. Apart from the fact that the buyer has to rely on his seller, who may or may not choose to co-operate in assigning his rights,[49] it is thought that many foreign sellers will be unwilling to change their standard sale terms simply to accommodate a defect of English law.[50] This apart, there are technical reasons why assignment is unsatisfactory. Under section 136 of the Law of Property Act 1925, notice has to be given to the carrier on each assignment, meaning in a chain of sales that a separate notice is required for each sale. The final buyer may in the end have little idea either who the original assignor was or what rights have been assigned. When the seller is a charterer, the assignment will be of rights under the charterparty which may be substantially less generous than under the Hague or Hague-Visby Rules.
(iv) Claims in tort
2.14 No consultant dissented from the Working Paper’s view[51] that if claims are to be made against a sea carrier, it is desirable that they are contractual rather than tortious. First, if the claim is in tort, the claimant has the onus of proving negligence and also that he had either the legal ownership of, or a possessory title to, the goods in question at the time when the loss of damage occurred.[52] In the case of a purchaser of part of a bulk, it is unlikely that he will have such rights because any loss or damage to the cargo will usually occur while the goods are still unascertained. Even in other cases, it may be difficult to pinpoint the exact time either of the negligence or when ownership passed to the claimant.[53] Furthermore, it is unsatisfactory that a buyer can sue in tort and evade the provisions of the contract of carriage which incorporates an internationally accepted set of rules.[54] Difficulties will also confront a carrier who seeks to plead contractual limitation or exemption clauses against a claim in tort. In The Aliakmon,[55] Robert Goff L.J. would in principle have applied the bill of lading terms to the claim in tort but his reasoning was not accepted by the House of Lords.[56]
C. INSURANCE
2.15 Since goods are normally covered by insurance against loss or damage while in transit, the problem of title to sue is to a large extent a problem faced by cargo underwriters and P. & I. Clubs, rather than traders themselves. However, it is not obvious that cargo owners should bear the added cost of increased premiums while shipowners are allowed to rely on a technicality of the Bills of Lading Act. Many traders have expressed serious concern at the current state of the law and do not see that the problem is simply one that can be shifted to insurance. Furthermore, the present law may discourage cargo interests from using English law as the proper law of their contracts and from resolving disputes in this country, a state of affairs which has implications for invisible earnings and the future of London as a centre for the resolution of commercial disputes.[57]
D. OUR RECOMMENDATIONS FOR REFORM
(i) Introduction
2.16 Consultation revealed an extensive desire to improve the position of the holder of the bill of lading who suffers loss and yet who cannot assert any remedy against the carrier. There were several methods by which people sought to achieve this result, although three received particular attention. Before considering these, mention will be made of the solutions canvassed in our consultation documents.
2.17 The first solution[58] was that the shipper’s contractual rights be transferred to the consignee/indorsee in cases where, had the cargo not been unascertained, property would have passed upon or by reason of the consignment or indorsement. This was strongly criticised by consultants as being too narrow a proposal. The transfer of property would still be linked in principle with the transfer of contractual rights and, although it would solve problems relating to bulk cargoes, it would be of no avail in cases such as The Delfini or The Aliakmon, where the cargo was not part of a larger bulk but where the buyer was on risk. We do not recommend adoption of this approach. The second solution[59] was to allow a consignee/indorsee to sue and be sued regardless of whether property had passed to him. If this solution were adopted without qualification it would leave pledgees, and others who had merely taken the bill as security, liable to pay such charges as freight and demurrage, a result which few would regard as acceptable. This raises the question whether implementing legislation should continue to link contractual rights and contractual liabilities in the way which the 1855 Act does.[60]
(ii) The three main approaches to reform of section 1 of the Bills of Lading Act 1855
Option 1
2.18 Of the three main options suggested by consultants, the first involves enacting what is usually called the wide view of section 1 of the 1855 Act. It would enable the lawful holder of a bill of lading to sue the carrier if at some stage the property passed to him under a contact in pursuance of which he became the lawful holder. This solution would solve cases like The Delfini[61] and it would, in principle, solve most bulk cargo cases. However, it would be of no avail where the buyer either never obtained a bill of lading or never obtained the property in the goods, as for instance where they were lost or destroyed before they became ascertained. We have therefore rejected this option as a basis for reform.
Option 2
2.19 A second option, and one that was popular amongst consultants, would be to remove all reference to property in section 1 of the 1855 Act and instead permit the lawful holder of a bill of lading to sue and be sued if he was on risk in respect of the loss which occurred.[62] Since risk determines who will actually suffer the loss, it is argued that it should also determine who can sue in respect of such loss. Thus, where the buyer had assumed the risk of loss and damage during transit, and actually suffers loss as a result of breach of the contract of carriage, he would be able to assert rights of action against the carrier. Such an amendment would solve the outstanding problems faced under the present law. However, as under the present law, pledgees would neither be able to sue nor be sued on the bill of lading,[63] so that the pledgee wishing to realise his security would still have to reply on a Brandt v Liverpool contract. There would also be the possibility of multiple claims, from the owner and from those on risk, although theoretically similar problems can arise under the present law.[64]
2.20 The main problem with this option is that risk is not an easy concept to define. It is not defined in the Sale of Goods Act where it is mentioned only four times.[65] Whereas property is in a real sense a right which is sold by the seller to the buyer, to say that risk has passed is really a shorthand way of saying that the seller has discharged his contractual duties and that the buyer must look for a remedy elsewhere, usually from the carrier or the underwriter.[66] Furthermore, it may be undesirable to use a concept, developed for a wholly different purpose, to determine the transfer of contractual rights against a carrier. There may also be circumstances where it is difficult to determine when risk has passed.[67] It was also argued on consultation that carriers could take technical points based on the requirement in section 32(3) of the Sale of Goods Act 1979 that where, unless otherwise agreed, the seller fails to give the buyer such notice as may enable him to insure the goods during sea transit in circumstances where it is normal to insure, the goods will be deemed to be at the seller’s risk. This difficulty may, however, be somewhat theoretical since section 32(3) would not usually operate in c.i.f. contracts, where the seller must insure the goods, nor in f.o.b. contracts where the seller has agreed to arrange insurance for the buyer’s account.[68] Nevertheless, so far as we are aware, no other law explicitly uses risk as the decisive factor in enabling the buyer to assert contractual remedies against the carrier. Although the differences in practice between this option and Option 3 are not great, we have rejected Option 2 as the basis for reform.
Option 3
2.21 The broadest option for reform would be simply to allow the lawful holder of a bill of lading to sue the carrier in contract for loss or damage to the goods covered by the bill, irrespective of whether property in the goods passes upon or by reason of the consignment or indorsement. This would follow the practice in the USA and in a number of European countries. Under the US Federal Bills of Lading Act 1916,[69] usually referred to as the Pomerene Act, the holder of a duly negotiated order bill of lading thereby acquires the direct obligation of the carrier to hold possession of the goods for him according to the terms of the bill as fully as if the carrier had contracted directly with him. Under Article 510 of the Dutch Commercial Code, the proper and lawful holder of a bill of lading, ie someone who has not acquired it by means of theft, fraud, violence, etc, is entitled to receive delivery from the ship and, if appears, can sue the carrier for any loss or damage to the cargo. Under French law,[70] the person whose name appears on the bill, the person presenting a bearer bill or the last indorsee of an order bill may all sue the carrier, regardless of whether they were on risk or had property in the goods. Under German law, the lawful transferee of a bill of lading is enabled to sue the carrier for breach of his obligations under section 606 of the German Commercial Code.
2.22 We recommend that Option 3 should form the basis of a reform of the Bills of Lading Act 1855. Thus, there would no longer be a link between the transfer of contractual rights and the passing of property. Instead, any lawful holder of a bill of lading would be entitled to assert contractual rights against the carrier.HREF=’#note71′>[71] By lawful holder we mean the consignee named in the bill or any indorsee (or holoder of a “bearer” bill) who is in possession of the bill in good faith,[72] including those cases where the person becomes a lawful holder after the bill of lading has ceased to be a transferable document of title, though subject to what is said below at paragraphs 2.42-2.44. We favour this option for the following reasons. First, it solves all the main problems experienced by bills of lading holders under the present law, in particular the difficulties experienced in The Delfini and in sales of undifferentiated parts of a bulk cargo. Secondly, it builds and improves on the present law rather than providing a wholly untried technique such as a solution based on risk. At present, a sea carrier is obliged to give delivery against the presentation of a bill of lading. He is not required to make enquiries into whether or not the person has acquired the property in the goods and so he should not be able to defeat that person’s claim simply because the latter did not acquire property in the way required by the 1855 Act. If the buyer has acquired a right of delivery against the carrier, we believe that he should be able to sue the carrier for loss and damage, etc, for which the carrier is responsible. Thirdly, it is an improvement which brings our law into line with that of a number of our European partners: as we understand it, France, Germany, Holland, Sweden and Greece.
2.23 By way of amplification of the basic principle that the lawful holder of a bill of lading should be able to assert contractual rights of suit against the sea carrier, the following issues require examination.
Recovery by those who have not suffered loss
2.24 Transferring rights of suit to the holder of a bill of lading, regardless of the passage of property in the goods to which the bill relates, may give rights of action to those who have actually suffered no loss, such as a forwarding agent acting on behalf of the final holder of the bill of lading. It was argued by some consultants: (a) that, in the case of agents, this would be a departure from the general rule that an agent acting for a disclosed principal can neither sue in his own name nor be sued by a third party,[73] and in any event is contrary to the general rule that one person cannot recover another person’s loss; (b) that it is more natural that only the person who has suffered loss should be able to sue in respect of it; (c) that, since the person suing may never have obtained property in the goods, there is a danger of a multiplicity of actions, eg from the owner of the goods and the bill of lading holder; (d) that it will give rise to procedural difficulties.
2.25 We were not convinced by these arguments. Our policy is to give rights of action to holders of bills of lading. Since these may include those who have not suffered loss, it follows that such people would be able to sue. It is conceptually more satisfactory to allow this, since the question of the ultimate destination of damages is strictly res inter alios acta. Indeed, it may be unclear whether in the particular circumstances a person has suffered loss. We do not think it satisfactory that a sea carrier should be able to question the entitlement to sue of the consignee or indorsee by raising a technical point that the loss may ultimately fall on someone else.
2.26 Although it is a general rule that one person cannot recover another person’s loss, there are exceptions. In addition to cases such as trustees recovering their beneficiaries’ losses and bailees recovering where the ultimate loss falls on the bailor,[74] the House of Lords in The Albazero[75] recognised in principle that a consignor of goods could recover damages against the carrier where he had entered the contract for the benefit of the ultimate consignee, although not where the consignee had rights under the Bills of Lading Act.
2.27 As to the argument that it is more natural that the person who suffers the loss should sue, the following can be said. Sometimes a forwarding agent or a bank is named as the consignee in a bill of lading.[76] In those cases, we do not see anything wrong in the agent or bank suing and then holding any proceeds on account. We understand from consultation that it is common practice on the continent for agents to present bills of lading on delivery and also to process claims on behalf of their principals.[77] Indeed, under the present law, a bill of lading holder may recover damages in full in circumstances where he may not have suffered loss, whether because he has already recouped his loss,[78] or because the loss would ultimately fall elsewhere.[79] However, the general rule of English law is that where the plaintiff has suffered no financial loss he will not recover substantial damages.[80] Thus, clause 2(4) of the Bill provides that where a person with an interest or right in respect of goods to which the document relates is not the holder of the bill of lading, the holder shall be entitled to exercise the statutory rights of suit to the same extent that they could have been exercised if they had been vested in the person for whose benefit they are exercised. We feel that without such a provision, the decision in The Albazero[81] could prevent those holders of bills of lading who do not themselves sustain loss from recovering anything other than nominal damages.
2.28 Problems of double recovery (ie by a person entitled in contract and another in tort) are theoretically present under the present law.[82] The rights we propose to give to bills of lading holders would be in addition to any other rights such as those belonging to the owner of the goods at the time of the loss or damage. The owner who has been paid the price would hold any damages he recovered on account for the buyer. Thus, in The Sanix Ace,[83] the charterer, who owned the goods, was able to recover substantial damages against the shipowner, even though the risk was ultimately borne by a buyer to whom the charterer had sold the goods.
2.29 Possible procedural problems are said to include the difficulty of gaining discovery from a stranger to the action, eg in an action by an agent, the problem of gaining discovery from the principal. Although the general rule is that discovery can only be ordered as between parties to the action,[84] where the action is brought by an agent for the benefit of the principal, the defendant is entitled to discovery to the same extent as if the principal were a party to the action and can have the action stayed until such discovery is made.[85] The defendant is accordingly protected and the agent is unlikely to begin proceedings unless he can rely on the co-operation of his principal.
Pledgees and others holding the bill as security
2.30 The rights and liabilities of the shipper are only transferred, by operation of the 1855 Act, to one who obtains full property and not to an indorsee who is a mere pledgee.[86] The main practical effect of this is that pledgees such as banks cannot be sued under the 1855 Act for items such as freight or demurrage, although if they take or claim delivery they may be liable under a Brandt v Liverpool contract.[87] The corollary is that if the pledgee wishes to realise his security and sue the carrier, he cannot do so under the Act but must sue under a Brandt v Liverpool contract.
2.31 Under our proposals, pledgees and others holding the bill as mere security would be able to sue without having recourse to a Brandt v Liverpool contract. However, in accordance with our recommendations that there should not be an automatic linking of contractual rights and liabilities,[88] pledgees and others holding the bill merely as security would not be liable for such matters as freight or demurrage unless they sought to enforce their security. If the holder of the bill of lading is a pledgee, he can recover to the extent of the full value of the goods, in accordance with the recommendation made in paragraph 2.27 above.
Rights of the shipper and intermediate holders on risk
2.32 The question also arises whether the shipper or any intermediate holder of the bill of lading should be able to sue even after another person has become the lawful holder of the bill of lading.
The shipper
2.33 Several arguments have been advanced in favour of the shipper retaining rights of suit after someone else has become the lawful holder of the bill of lading.
(i) It is said to be an unwarranted restriction of the contractual freedom of the parties that by statute the shipper loses his rights after parting with the bill of lading.
(ii) It is said that this is the more unfair since:
(a) the shipper will retain liabilities even after indorsement;
(b) there may be occasions when the shipper remains on risk or retains property in the goods, even though he has parted with the bill. Similarly, there may be terms of the bill which only he has an interest in enforcing.
(iii) Finally, it is said to be cumbersome to require the shipper to make express contractual arrangements if he wishes to retain rights.
2.34 However, we have decided that the shipper should not have rights of suit after someone else has rights transferred to him by becoming the lawful holder of the bill of lading.[89] This accords with the present law which has not led to unfairness, since standard trading practices give a shipper who remains on risk after ceasing to hold the bill of lading a number of ways of protecting himself. These have proved adequate ever since the 1855 Act and, in the light of our consultation, we consider that they will continue to prove adequate under our proposed reform. In more detail, our reasons are as follows:
(i) An important practical consideration is that, alrready under our proposals, we are recommending that a wider category of people can assert contractual rights against sea carriers. To allow the shipper under a bill of lading to sue in addition to an expanded category of third parties would be further to increase the number of people who can sue carriers. We do not see why the carrier should be subject to an action from the holder of the bill of lading only to find a potential claim by the shipper, perhaps made in a different jurisdiction from the suit by the holder.
(ii) If a shipper is able to sue where he has suffered loss, so logically should all intermediate holders on risk be able to sue.[90] However, the prospect of a multiplicity of actions brought by previous holders of a bill of lading is one which we regard as in no way desirable.
(iii) A bill of lading is a transferable document of title at common law which, by custom of merchants, is the key to the warehouse and the transfer of which transfers the seller’s rights over the goods to the new holder. If a person who transfers a bill of lading were to retain rights, it would enable him to undermine the security of the new holder by anticipatory action, in addition to exposing the carrier to inconsistent claims. Since the question of who bears the risk of a loss will depend on the sale contract, the holder may find that the shipper has been compensated in proceedings to which the holder was not a party, without being able to argue that the loss was his. The carrier, in subsequent proceedings by the holder would surely not be required to pay again, and the holder might be left without a remedy. In answer to this, it could be said that to allow the shipper to sue in those cases where he has suffered loss will not prejudice the holder’s security, since only the holder of the bill can demand delivery. Nevertheless, it would be necessary to set out in legislation exactly what is meant by “rights of suit”, since the bill of lading shipper would clearly not have a right of delivery once the bill of lading was transferred to someone else. This would complicate the legislation. Furthermore, it would be odd to give the bill of lading shipper rights which stemmed from mis-delivery, given that he no longer has any control over the goods or any right to delivery once he has parted with the bill of lading. It is true that, in the context of sea waybills,[91] we recommend that the consignee’s rights are without prejudice to the waybill shipper’s rights. The reason for this is that because a sea waybill is not transferable and is not a document of title, it is important that the shipper should retain his contractual rights (whether of disposal or generally) if he so wishes.[92] This argument does not apply to a bill of lading. When the “key to the warehouse” is transferred, the common law does not, so to speak, allow the transferor to have another one cut for use in emergencies. The 1855 Act recognised the good sense in this, so that the shipper lost his rights over the goods and his rights of suit when someone else acquired them.
(iv) The statutory assignment model of the 1855 Act is familiar to international traders and we have had no complaints from cargo interests on this aspect of the law. Our reform is an evolutionary one which recognises that those parts of the 1855 Act which have worked well should be retained, rather than a revolutionary one which adopts a totally new technique which, at least on this issue, would give shippers something for which there is no demand while carriers could legitimately complain that English law gave them less protection than under any of the other maritime jurisdictions which we have examined.
2.35 Having given our positive reasons for treating the bill of lading shipper in the way we recommend, we examine the arguments against our treatment which were summarised at paragraph 2.33 above, none of which we find convincing.
2.36 It is said to be an unwarranted interference with the existing rights of the shipper. However, where contractual rights are transferred by reason of the 1855 Act, the shipper loses his contractual rights, so that our proposed policy accords with the existing law. The preamble to the 1855 Act states, so far as is material, that “by the custom of merchants a bill of lading of goods being transferable by endorsement the property in the goods may thereby pas to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner, and it is expedient that such rights should pass with the property” (emphasis added). Section 1 provides that every consignee and indorsee to whom the property in the goods passes upon or by reason of the consignment or indorsement “shall have transferred to and vested in him all rights of suit”. We are not aware of any statutory context in which the verb “transfer”, when applied to rights, has been used in a way which would allow the transferor to retain any of the transferred rights. In Sewell v Burdick,[93] the Earl of Selborne L.C. said that the statute provides that “all rights of suit under the contract contained in the bill of lading should be transferred to the indorsee and should not any longer continue in the original shipper or owner” (his emphasis). This view is also supported by Short v Simpson,[94] where it was held that the reindorsement of a bill of lading to the original shipper remitted to him all the rights under the bill of lading contract. Had the original shipper’s rights under the bill of lading contract remained in him, the reindorsement and the argument in the case would have been unnecessary. All the judges spoke of the shipper’s rights being remitted to him, clearly implying that at one stage he had been divested of them. There is a dictum to the contrary by McNair J. in Gardano & Giampieri v Greek Petroleum George Mamidakis & Co.,[95] but this relies on pre-1855 cases, and does not address the wording of the 1855 Act or consider the statements in Sewell v Burdick and Short v Simpson. Whereas at common law the original shipper could sometimes recover substantial damages from the carrier even after property had passed,[96] it was held in The Albazero,[97] overruling Gardano on this point,[98] that since the Bills of Lading Act was passed the rationale of that rule is no longer applicable where the transferee has contractual rights against the carrier. It is thus generally accepted that a shipper may sue in contract, providing that he has not divested himself of his rights by indorsement of the bill of lading.[99]
2.37 As for the argument that it is unfair that the shipper should retain liabilities whilst losing rights, it is at least arguable that under the 1855 Act, as at common law, the original shipper remains generally liable under the contract of carriage.[100] The Act speaks in terms of transferring rights but not liabilities, just as a party to a contract may assign rights but not liabilities. The Act makes the consignee/indorsee subject to the same liabilities as if he had been a party to the contract contained in the bill of lading, without actually saying that liabilities are transferred. Furthermore, whilst section 2 of the Act expressly preserves the shipper’s freight liabilities, it does not (at least expressly) divest the shipper of any liabilities to which he was subject at common law.[101]
2.38 It is said that our policy leads to injustice or imposes cumbersome arrangements on a shipper who trades in the normal way. We do not accept this argument. In the great majority of cases, the shipper will face no problems. In the small number of cases where the shipper remains on risk after parting with the bill of lading, there are standard trading alternatives open to him and, insofar as he does not so protect his position, his problems are the result of his own voluntary act. In a normal documentary sale, let us say on c.i.f. or f.o.b. terms, risk will pass on, or as from, shipment and the seller will be paid against shipping documents. Providing he ships conforming goods and tenders conforming documents, he performs his contractual obligations, and supervening events will be for the buyer’s account. In turn, the buyer will pass on the risk and will be paid in the normal way. We are all agreed that in most cases, the shipper will not remain on risk after he ceases to hold the bill of lading and so he will therefore not normally have any interest in suing. One of us is of the view that the shipper should retain rights of suit in addition to any possessed by the ultimate holder,[102] although there appears to be no good reason why the original shipper requires statutory protection whereas the intermediate holder on risk is left to his own devices.
2.39 Where the seller remains on risk beyond the normal time in documentary sales, for instance, because he has made an ex ship contract which binds him to make actual delivery of the goods, he can keep the bill of lading as security, present it to the ship and will be able to assert rights thereunder.[103] Even in those ex ship or arrival contracts where the seller retains risk and property during transit, and yet transfers the bill of lading to someone who has no interest in suing having suffered no loss, there would be nothing in our recommendations to prevent the seller suing in tort by reason of being the owner of the goods, which he can do under the present law. As for the shipper who, let us say, is seeking a loyalty rebate on freight,[104] we understand that this is a matter which is typically covered by a separate (perhaps annual) agreement between shipper and shipowner. Furthermore, where the shipper is a charterer his rights against the shipowner under the charterparty will not be transferred: only bill of lading rights are transferred by the bill, not charterparty rights.[105] The fact that the shipper has no rights after indorsement under the law of the United States, France, Germany and Holland, which give rights to the holder of the bill of lading, confirms us in the view we have taken.[106] Thus, after much consultation, we have concluded that it would not be satisfactory to disrupt established international trade law under which the shipper divests himself of rights of suit by transferring them to another person. We have received no evidence that problems are posed for the sensible commercial trader. On the other hand, we have had firm representations from shipowners that any reform which gave concurrent contractual rights of suit to shippers and holders of bills of lading would be an objectionable change in the law.
Intermediate holders
2.40 At present an intermediate holder of a bill of lading loses both rights and liabilities after indorsing the bill of lading.[107] It was argued by some consultants that there are occasions where an intermediate seller may need to sue the carrier, even after indorsement, because he remains on risk. There may be an “out-turn” clause in the contract of sale which stipulates that part of the price is to be paid only on delivery or that any quantity undelivered shall be written off the contract quantity.[108] If short delivery is made and an intermediate seller has indorsed the bill, under our proposals he will be unable to sue even though he is on risk. Furthermore, the eventual bill of lading holder may have suffered no loss and have no incentive to sue. Hence, the suggestion was made that an intermediate holder of the bill should be able to sue in respect of loss he could prove he had suffered.
2.41 However, we are not persuaded that such an exception is necessary. It would bring into the equation the notion of risk, which as a basis for reform we have rejected. The intermediate seller has the same trading alternatives as the original seller.[109] In the small number of cases where such a seller remains on risk even though he has parted with the bill of lading, it would be possible for him to arrange an assignment of the buyer’s rights against the carrier. An assignment of such a sort is permissible where the assignee has a genuine commercial interest in the enforcement of the claim.[110] We understand from consultation that this is standard practice in the oil industry when out-turn adjustment clauses are used. Thus, we do not intend to make express legislative provision for those cases where either the original shipper or an intermediate seller remains on risk after transfer of the bill. The matter can be adequately regulated by contractual negotiations.
Indorsement after delivery
2.42 Once delivery of the goods has been made to the person having a right under the bill of lading to claim them, the bill of lading ceases to be an effective document of title which transfers constructive possession of the goods.[111] Since the bill of lading is designed to facilitate dealings with the goods in transit, it is obvious that the bill of lading can no longer purport to be the “key to the warehouse” once delivery has been made to the person entitled to delivery.[112] At that time, possession of the bill no longer gives a right as against the carrier to possession of the goods. However, it should not follow from this that rights of action should be incapable of being transferred after delivery. A bill of lading may take a year to reach the ultimate holder. It is unsatisfactory that, meanwhile, there comes a point in time (delivery of the goods) after which it suddenly becomes incapable of performing a crucial function, that of transferring contractual rights against the carrier,simply because after the carrier has discharged his obligation to deliver the goods the bill of lading can no longer transfer constructive possession of the goods. Hence, we recommend that implementing legislation should make clear that a bill of lading can be effectively indorsed so as to pass contractual rights even after delivery has been made.
2.43 Nevertheless, by extending rights of suit to those acquiring the bill of lading after delivery, there arises the possibility that bills of lading could be negotiated for cash on the open market, without any dealings in the goods: in other words, trafficking in bills of lading simply as pieces of paper which give causes of action against sea carriers. Let us say that a ship makes short delivery under a letter of indemnity and subsequently, perhaps months after the event but before the expiry of the relevant limitation period, the bill of lading is indorsed to someone who in turn seeks to sue the carrier. The subject matter of the sale would, in such a case, be no more than a cause of action against the ship. It is true that, in the context of assignment, the courts are able to distinguish between selling lawsuits as articles of commerce and taking an assignment where one has a genuine commercial interest in so doing.[113] One possibility, therefore, would be to leave the matter to be dealt with by the normal rules relating to maintenance and champerty.[114] However, we prefer not to leave any uncertainty on this matter.
2.44 Hence, clause 2(2) of the Bill provides, in effect, that an indorsement of a bill of lading after delivery will be effective to transfer contractual rights where the indorsement was effected in pursuance of contractual or other arrangements made before delivery. For instance, let us say that goods which are to be delivered in June are sold by A to B in March, by B to C in April and by C to D in May. Upon delivery of the goods to the person entitled to them, the bill of lading ceases to be a transferable document of title: it can no longer perform its function of granting constructive possession of the goods to which the bill relates. The bill of lading makes its way down the chain and is indorsed to D in September. Although by that time the bill has ceased to be a transferable document of title, D has rights of suit against the carrier. This is because he became the lawful holder of the bill in pursuance of arrangements (viz the sale contract concluded in May) made before the bill of lading ceased to be a transferable document of title (in June).
Claims in tort
2.45 The question was raised in the Working Paper[115] whether it might be necessary to exclude or limit rights of suit in tort since our reform might expose the shipowner to double liability. If property in the goods had not passed before they were damaged but in circumstances where a bill of lading had already been transferred, the seller might have a claim in tort as owner of the goods in addition to the claim in contract by the holder of the bill of lading, although there may well be cases where the seller does not have an immediate right to claim possession of the goods on which to found a claim in tort.[116] It is inconceivable that a court would permit double recovery of damages under our proposals any more than it would now. Moreover, to exclude the rights of suit of the owner could produce the anomaly that P, qua owner, was unable to sue where as qua charterer he could.[117] We do not recommend that rights of action in tort should be explicitly excluded from implementing legislation.[118]
Multimodal transport documents
2.46 A question which was raised during the consultation period was whether implementing legislation should include reference to multimodal carriage, ie to carriage which is partly by sea and partly by some other mode of transport.[119] Clearly, the general problems associated with multimodal transport documentation and the legal liability of the multimodal transport operator are beyond the scope of our project.[120] However, the more limited question asks whether implementing legislation should make any, and if so what, provision for documents such as “through” bills of lading and “combined transport” bills of lading.
2.47 A “through” bill of lading, or “through” transport document, generally refers to a document containing a contract for the carriage of goods in separate stages, one stage of which involves a conventional sea transit, but in circumstances where the carrier issuing the document acts as a principal only when he has control of the goods (usually the sea transit) and as an agent at all other times, during which the merchant will be subject to the terms and conditions of, say, the rail, road or air carrier. A combined transport bill of lading, or combined transport document, generally refers to a document issued by a combined transport operator who acts as principal throughout all the stages of the transit, so the shipper has complete cover on a door-to-door basis and need concern himself with no person other than the combined transport operator.[121]
2.48 Since combined transport bills of lading usually state on their face that goods have been received by the carrier rather than that they have been shipped on board a vessel,[122] they raise the question whether implementing legislation should state categorically whether “received for shipment” bills of lading come within its ambit in the same way that “shipped” bills of lading do.[123] Although it is arguable that there is an important difference between a document saying that goods have been shipped and one indicating that they will in the future be shipped,[124] it has also been argued that the fact that the document states that goods have been received for shipment merely indicates that the bailment of the goods has started at an earlier stage than in the case of a shipped bill of lading, a distinction of fact which makes no different in law.[125] Traders and bankers alike deal with “received for shipment” bills of lading and “shipped” bills of lading in the same way.[126] We have recommended that implementing legislation should treat “received for shipment” bills of lading on the same footing as “shipped” bills of lading.
2.49 The question whether “through” bills of lading and combined transport bills of lading come within the terms of the 1855 Act has never been decided in this country. Such bills of lading have been in common use for over a century,[127] although opinion is divided over whether they come within the 1855 Act. A respectable body of opinion takes the view that they are not included in the Act,[128] one reason being that they were not in use in 1855. However, Benjamin[129] considers that the common use of such documents, their increasing standardisation and their acceptability to banks under documentary credits may support a custom that such documents are documents of title, whilst Scrutton[130] submits that there is little difficulty in establishing that such documents are within the 1855 Act. Once again, these documents are typically treated by traders like traditional bills of lading, and provision is made for their tender in the Uniform Customs and Practice for Documentary Credits. We had no evidence from consultants that there are particular privity problems which are unique to combined transport bills of lading as distinct from the traditional ocean variety. Nevertheless, the multiplicity of different types of multimodel documents makes it difficult to make dogmatic assertions about them,[131] and we do not propose to make express provision by name for the various types of multimodal documents currently in use. However, since implementing legislation is expressed to cover any bill of lading, including “received for shipment” bills, multimodal documents are capable of falling within its ambit.
Definition of bill of lading
2.50 We have also opted against a definition of “bill of lading”, just as there is no definition under the 1855 Act or the Factors Acts. Under the present law, a bill of lading is usually identified by reference to its three functions, ie that it is a receipt for the goods, that it usually evidences the contract of carriage and that it may be a document of title (at least until complete delivery of the goods has been made to the person entitled thereto). However, to attempt a definition, which would necessarily be elaborate would, we feel, be counterproductive, particularly as there are many documents which are called bills of lading but which are not bills of lading properly so-called: for instance, a standard ocean “shipped” bill of lading is radically different from a so-called “house” bill of lading, which is really no more than a merchant’s delivery order.[132] However, clause 1(2) of the Bill stipulates that a bill of lading must be transferable, thus following the preamble to the 1855 Act. A “straight” consigned bill of lading, such as one made out “to X” without any such words as “to order”, is not a document of title at common law.[133] It will therefore merely be a receipt for the goods and, in the absence of a charterparty, will usually evidence (in the hands of the shipper) or contain (in the hands of a third party) the terms of the contract of carriage. Hence, it will resemble a sea waybill, apart from the fact that a sea waybill will not normally be presented to the ship to obtain delivery.[134] The main practical consequence of “straight” bills of lading not satisfying clause 1(2) of the Bill is that they will not fall within the ambit of clause 4 of the Bill, relating to the conclusive nature of a bill of lading in the hands of a lawful holder.[135] Were a “straight” bill of lading to be a bill of lading for the purposes of the Bill, it would mean that the holder thereof would have the benefit of clause 4 whereas the consignee named in a sea waybill would not. Apart from being inconsistent with the Hague-Visby Rules,[136] this would be an anomalous result given that “straight” bills of lading and sea waybills are much the same type of document save that the sea waybill is not required to obtain delivery. The contrary argument is that sea waybills should come within the ambit of clause 4, an argument which we have rejected for the reasons given below.[137] In conclusion, we require that a bill of lading must be transferable to fall within the Bill. Where a bill of lading is not transferable, it will undoubtedly fall within the definition of sea waybill to be found in clause 1(3) of the Bill.
Bills of lading for goods on a chartered ship
2.51 There are several issues which have caused difficulty on the bill of lading/charter-party overlap.[138] The main ones are as follows:
(i) Where the shipper is a charterer who indorses a bill of lading to another, does the charterer lose his rights under the charterparty?
(ii) Where the shipper indorses a bill of lading to the charterer, do the charterer’s rights against the shipowner stem from the charterparty or the bill of lading?
(iii) Where the lawful holder of the bill of lading has the bill indorsed from a charterer, do the indorsee’s rights stem from the bill of lading or the charterparty?
Charterer as shipper
2.52 It is agreed that where the shipper is a charterer, indorsement of the bill of lading should not deprive the charterer of his rights under the charterparty. In such a case, the bill of lading is usually a mere receipt which is designed to facilitate dealings with the goods in transit.[139] There are no compelling policy reasons why a charterer should be deprived of rights of suit under his contract of carriage simply because he indorses what is, for him, a receipt. In The Albazero,[140] the charterer was unable to recover substantial damages under the charterparty because he had suffered no loss or damage, not because he had lost rights by indorsement of the bill of lading. Our Bill does not extinguish a charterer’s rights under a charterparty upon indorsement of a bill of lading. Clause 1(1) states that the Act applies to three types of document, none of which is a charterparty. Clause 2(5) states that where rights are transferred in the case of a bill of lading, the rights of an original party to the contract are extinguished. Clause 5(1) makes it clear that the contract of carriage, in such a case, is the contract contained in or evidenced by the bill of lading. In other words, there is nothing in the Bill which deprives a shipper-charterer from any of his rights under the charterparty.
Charterer as indorsee
2.53 Where a bill of lading is issued to the shipper and is thence indorsed to the charterer, nevertheless the charterparty will normally remain the governing contract between the shipowner and the charterer.[141] There are no convincing policy reasons why this position need be altered in implementing legislation.[142] While this is the position reached by the cases, it is perhaps a little difficult to reconcile with section 1 of the 1855 Act, which states that a bill of lading indorsee has rights transferred to him as if he had been a party to the bill of lading contract: it says nothing to indicate that the position differs depending on whether the indorsee is a charterer. However, the argument which prevailed in The Dunelmia[143] is that the 1855 Act did not deal with charterparties, and that there is no need for a statutory assignment when the charterer has a subsisting contract under the charterparty. There is nothing in the Bill which would require a court to decide The Dunelmia differently. It is true that clause 2(1) applies to lawful holders of a bill of lading. A lawful holder can include a charterer to whom a bill has been indorsed. It might be argued that the charterer has transferred to him the rights as contained in or evidenced by the bill of lading. However, he still has his rights as charterer; nothing in the Bill deprives him of these. This problem is one which the courts have faced under the present law. A charterer can, under the 1855 Act, be an indorsee to whom property passes upon or by reason of the indorsement. Nevertheless, the courts construe the charterparty and the bill of lading and the charterparty may prevail.[144] The courts have been alive to the argument that a charterer cannot have transferred to him rights as if he had been a party to a bill of lading contract when he already has rights under a charterparty contract. The problem will always arise when the courts have to construe two contracts, a charterparty and a bill of lading. We do not think that it is a problem which the legislature should address. Ultimately, the question will be a factual one for the courts to decide, depending on the terms of the relevant charterparties and bill of lading.
Indorsement from charterer
2.54 It appears settled that, whereas a bill of lading is typically a receipt as between the shipper-charterer and shipowner, as between shipowner and indorsee the bill of lading must be considered to contain the contract of carriage, so that the indorsee from a charterer acquires rights under the bill of lading.[145] It is true that the 1855 Act speaks of the contract contained in the bill of lading, so that, where the contract of carriage is contained in the charterparty, the bill of lading neither contains nor evidences the contract. Lord Atkin in Hain S.S. Co. v Tate & Lyle[146] thought that a contract sprang up on indorsement. Scrutton suggests that the words in section 1, “the contract contained in the bill of lading”, should read “as if a contract in the terms set out in the bill of lading had at the time of shipment been made with himself”.[147] Under our Bill, the indorsee of a bill from a charterer will have transferred to him rights under the bill of lading rather than the charterparty. Clauses 2(1) and 5(1) give the holder rights as if he had been a party to the contract of carriage, which in the case of a bill of lading means the contract contained in or evidenced by the bill of lading. There is nothing on the face of the Bill which puts the indorsee in the charter’s shoes.
2.55 In conclusion, we believe that there is nothing in our Bill which takes away the rights of a charterer under a charterparty contract, whether a shipper [situation (i)] or an indorsee [situation (ii)]. There will be inevitable difficulties where there are two contracts to construe, but these are problems which the courts have in hand, as The Dunelmia shows. Just as the shipper-charterer will not lose his charterparty rights under the Bill [situation (i)], there is nothing in the Bill which says that the lawful holder will have transferred to him charterparty rights [situation (iii)].
Part III The Separation of Contractual Rights and Liabilities
(a) Introduction
3.1 An issue which we found difficult to resolve, and which led to a division of opinion on consultation, concerns the extent to which the holder of a bill of lading should be liable to the carrier in respect of obligations under the contract of carriage.
(b) The present law
3.2 The preamble to the Bills of Lading Act 1855, while stating that it is expedient that the shipper’s rights should pass with the property, makes no mention of liabilities. Section 1 refers to the transfer to, and vesting in, the consignee/indorsee of all rights of suit. Whilst not referring to the transfer of liabilities, it provides that the consignee/indorsee will be subject to the same liabilities in respect of the goods as if the contract contained in the bill of lading had been made with himself. It is therefore clear that under the present law, the consignee or indorsee who has rights of suit is also subject to liabilities.[148] However, it does not appear to have been decided whether section 1 of the 1855 Act operates to subject the consignee or indorsee to all the liabilities of the shipper, whether incurred before or at the time of shipment, or before indorsement of the bill of lading, or only those liabilities subsequent to shipment or indorsement of the bill of lading.[149] Scrutton states that the consignee or indorsee should only be liable in respect of obligations arising after the goods have been shipped or the bill of lading indorsed, as the case may be.[150] This would exclude liability in respect of the shipment of dangerous cargo, and perhaps other matters such as demurrage incurred at the port of loading.
3.3 Although there would appear to be few problems in practice under the present law relating to the imposition of liabilities on holders of bills of lading, our proposals to extend rights of suit[151] requires a reconsideration of the link between rights and liabilities. If the shipper’s rights and liabilities were to be transferred to all holders, including those holding the bill merely as security, it would mean that such people, including banks who take up shipping documents in the normal course of financing international sales, would be liable for freight, demurrage and other charges. This would reverse the decision of the House of Lords in Sewell v Burdick,[152] and would be commercially undesirable. It is not part of the commercial risks undertaken by a bank, when it merely holds a bill of lading as security, to undertake to perform the substantive obligations contained in the bill.
3.4 A number of solutions to the problem of the link between rights and liabilities were canvassed by consultants, including the following: (a) that the link between title to sue and liabilities should be broken, so that the carrier would have no statutory right of suit against the holder of the bill of lading in respect of bill of lading liabilities; (b) that the holder of the bill of lading should have all contractual liabilities transferred to him together with contractual rights, with exceptions in favour of those such as banks who hold the bill of lading, say, as security for a loan; (c) that the holder of the bill of lading who actually enforces any rights under the contract of carriage should be subject to the liabilities under the contract.
(c) Arguments against the bill of lading holder being subject to liabilities
3.5 It was argued by some consultants that, just as it would be unfortunate to continue to link contractual rights and liabilities with the passing of property, it would also be unfortunate to continue to link contractual rights with contractual liabilities.[153] The reasons for this view are as follows.
3.6 First, the mischief against which the 1855 Act was directed was that a transferee of a bill of lading could not sue the shipowner because he was not in privity of contract with him The fact that, at common law, the shipowner was unable to sue the transferee rarely gave rise to difficulties since the shipowner had: (a) contractual rights against the shipper or the charterer;[154] (b) a possessory lien over the goods for certain charges; (c) a claim under [what later became known as] a Brandt v Liverpool contract against the indorsee where, in consideration for giving up his lien for unpaid freight or demurrage or other charges, he made delivery, or agreed to make delivery, in circumstances where the holder paid, agreed to pay or was taken to have agreed to pay, outstanding dues.[155] Thus, there was, and still is, arguably no need for the carrier to be given a statutory right to sue the transferee of the bill of lading. This explains the preamble to the 1855 Act, which refers only to the expediency of the transfer of contractual rights to the indorsee.
3.7 Secondly, it may be unfair for the holder of a bill of lading to be liable for someone else’s breaches over which he had no control and for which he was not responsible, as when damage is suffered as a result of dangerous cargo having been shipped or when demurrage is incurred at the port of loading. Why should a person, who may be contractually obliged to take up a bill of lading, have, in effect, to buy liabilities, particularly those which have accrued against an earlier holder of the bill? A contract of carriage of goods which are sold in transit is really a contract for the benefit of a third party.[156] Hence, it is sufficient that new rights in favour of the third party beneficiary arise under the contract on transfer of the bill of lading. Thus, neither under the US Federal Bills of Lading Act 1916 nor the Uniform Commercial Code is the carrier given any express rights of suit against the transferee of the bill.[157]
3.8 Thirdly, if any holder of a bill of lading could be sued on the contract of carriage, there would have to be a mechanism to prevent those who hold the bill merely as security from being sued. It would not make commercial sense for banks to be liable for such matters as freight and demurrage simply because they held the bill of lading.[158]
(d) Arguments in favour of the bill of lading holder being subject to liabilities
3.9 There are several arguments in favour of making holders of bills of lading take the burden of contractual liabilities in addition to the benefit of contractual rights, which we discuss below. These arguments all assume that, in order to avoid the eventuality of those holding the bill merely as security from being sued for freight and other charges, it would be necessary either (a) expressly to exclude those who merely hold the bill as security from being sued, or (b) to stipulate that only the person who claims or takes delivery should be liable under the contract of carriage.
3.10 The scheme of the 1855 Act has worked well in practice. It would be unfair to shipowners to widen the category of persons able to assert contractual rights against them whilst, at the same time, taking away the ability of the shipowner to assert contractual rights against such persons.
3.11 It is impracticable to confine shipowners to rights against the shipper and to rights afforded by their possessory lien. The shipper may be untraceable or insolvent, and possessory liens, which enable shipowners to retain possession of the goods until certain charges have been paid, are difficult or impossible to enforce in many parts of the world.
3.12 Cases occurred before the 1855 Act in which carriers were unable successfully to sue indorsees, who had taken delivery of the goods, for freight or demurrage.[159] Hence, there was a need for the Act to allow carriers to sue indorsees in respect of liabilities in the bill of lading. However, even before 1855, it was recognised that a separate contract, which subsequently became known as a Brandt v Liverpool contract, could come into existence between the carrier and the indorsee, enabling the carrier to sue for freight or other charges, depending on the circumstances. In White & Co Ltd v Furness, Withy & Co Ltd,[160] Lord Herschell L C said that, save in very special circumstances, an implied contract to pay freight would always be found when a shipowner surrendered his lien by giving delivery. This line of authority was confirmed in The Aramis, HREF=’#note161′>[161] although the circumstances in which an implied contract can be found have been restricted by that case.[162]
3.13 Although it may be unfair for the holder of a bill of lading to be liable for something for which he was in no way responsible, as in the case of loss caused by the shipment of dangerous goods or where demurrage is incurred at the port of loading, these problems are probably more apparent than real. We have received no evidence that claims for demurrage at the port of loading against holders of bills of lading cause difficulties in practice. This is typically a charterparty matter which is settled between vessel and charterer. Indeed, in practice, sale contracts may include a provision requiring the buyer to indemnify the seller for any demurrage payment that he is required to make. Similarly, we are not aware that indorsees are regularly (or ever) liable for such matters as unpaid advance freight or in respect of the shipper’s breach of warranty in shipping dangerous goods.
3.14 If the reformed Act completely divorced rights and liabilities, it would depart from the position under the various international road, rail and air conventions,[163] according to which the consignee who accepts goods under a waybill or consignment note must pay the charges set out therein.[164]
(e) Our recommendations for reform
3.15 We acknowledge that this issue is a difficult one, on which consultants have expressed different views. We have decided to opt for a solution based on the provisional recommendation made by the Scottish Law Commission in its Discussion Paper,[165] with modifications. Contractual liabilities are not to be automatically imposed on every holder of a bill of lading. However, where the holder of the bill of lading enforces any rights conferred on him under the contract of carriage he should do so on condition that he assumes any liabilities imposed on him under that contract.
3.16 Clearly, it is important to know when the holder of the bill is enforcing rights so as to make him subject to contractual obligations. It is not desirable that liabilities could be enforced against the person who merely holds the bill of lading, otherwise banks and others merely with a security interest would be liable without more. The question is whether the holder should be subject to liabilities if he either takes delivery or merely claims delivery, for instance by presenting the bill of lading to the ship. We believe that he should, in principle, be subject to liabilities in either case, for the following reasons.
3.17 The bill of lading contract represents a sophisticated bundle of terms relating to shipment, delivery, payment, choice of forum, choice of law, etc. Whereas conceptually it is possible to analyse certain matters as being rights and others as being liabilities, this analysis has its limits. For instance, it may be difficult to characterise a choice of law clause a being either a right or a liability. Nonetheless, assuming that the analysis can be performed, we do not think, as a general principle, that it is fair that the holder of a bill of lading can, so to speak, pick and choose those clauses which give him rights while claiming immunity from those clauses which happen to subject him to a liability.
3.18 We see, in general, no unfairness in making the person who either claims delivery or who takes delivery of the goods, from being subject to the terms of the contract of carriage, since in both cases the person is enforcing or at least attempting to enforce rights under the contract of carriage. Under the present law, the person who seeks or claims delivery will be liable under the contract of carriage where property passes in the way stipulated by section 1 of the 1855 Act, or where a Brandt v Liverpool contract is found.[166] Although it may seem odd to impose liabilities on the person who claims delivery but who actually receives nothing, this will not invariably be so. Let us say that a buyer agrees to take delivery, but will only do so from a particular dock so that the ship has to delay unloading until there is enough water. Demurrage is meanwhile incurred. If the goods are subsequently destroyed, it does not necessarily seem unreasonable that the buyer should pay the demurrage even though he never receives the goods.
3.19 Thus, we believe that where a person takes or demands delivery of any of the goods to which the document relates, or otherwise makes a claim against the carrier in respect of any of the goods, fairness decrees that he assumes the obligations imposed on him under the contract.[167]
3.20 It was suggested on consultation that the holder of the bill should only be liable in respect of post-shipment, and not pre-shipment, liabilities. It was said to be unfair that the final holder of the bill of lading should be liable in respect of such matters as the shipper’s breach of warranty in shipping dangerous goods,[168] demurrage incurred at the port of loading, dead freight and unpaid advance freight. The consignee or indorsee often stands in no relation to the goods at the moment of shipment, and to make him liable in respect of pre-shipment liabilities is to make him subject to a retrospective liability for acts with which he had nothing to do.[169]
3.21 It is true that the above liabilities may accrue on, or before, shipment and that it may seem unfair that the holder should be liable for them. Nevertheless, we do not think that a satisfactory line can be drawn at the moment of shipment, with post-shipment liabilities being transferred but not pre-shipment liabilities. For instance, demurrage can accrue by reason of delays caused by strikes, congested ports, bad weather, etc.[170] It seems odd to say that fairness dictates that the holder should be liable for demurrage when these matters occur at the port of discharge but not at the port of loading.
3.22 It was also suggested to us that special provision should be made so that the consignee or indorsee should never be liable in respect of loss or damage caused by the shipper’s breach of warranty in respect of the shipment of dangerous cargo. This is said to be a particularly unfair example of a retrospective liability in respect of something for which the consignee/indorsee is not responsible. However, we have decided against such a special provision. We do not think that liability in respect of dangerous goods is necessarily more unfair than liability in respect of a range of other matters over which the holder of the bill of lading has no control and for which he is not responsible, as for instance liability for loadport demurrage and dead freight. Also, it may be unfair to exempt the indorsee from dangerous goods’ liability in those cases where he may have been the prime mover behind the shipment. Furthermore, it is unfair that the carrier should be denied redress against the indorsee of the bill of lading who seeks to take the benefit of the contract of carriage without the corresponding burdens.
Liabilities of the original shipper
3.23 At common law, the original shipper remained liable on the bill of lading contract, in spite of any rights acquired by an indorsee on an implied conract.[171] Section 1 of the 1855 Act uses the word “transfer” in respect of rights but not liabilities, which may imply that the shipper remains liable after indorsement. However, section 2 of the 1855 Act states, inter alia:
“Nothing herein contained shall prejudice or affect any right of stoppage in transitu, or any right to claim freight against the original shipper or owner …”.
Freight may have been singled out in section 2 because a shipowner has a common law lien for freight but not for demurrage, dead freight,[172] port charges, etc. By expressly preserving the liability of the shipper for freight, it could be inferred that his other liabilities are transferred. On the other hand, the 1855 Act does not expressly relieve the shipper from other liabilities to which he remained subject at common law and, as a matter of policy, it is difficult to see why the shipper should remain liable for freight but not also for demurrage, dead freight, or other charges.[173] To the extent that the 1855 Act is regarded as a statutory assignment, it would follow that whereas it operates to transfer rights, it does not transfer liabilities which accordingly remain with the shipper.[174] As for the merits of this result, if an exporter shipped a cargo of highly poisonous gas which escaped and caused extensive property damage and loss of life, a shipowner would be disturbed to find that the shipper had been absolved of his liabilities simply by indorsing the bill of lading to another; the more so, since if the new holder did not seek to enforce the contract, the shipowner would be denied redress against anyone.
3.24 We therefore recommend that the liabilities of the holder of a bill of lading are without prejudice to any liabilities of the original shipper.[175] This recommendation would not prevent the shipper from making special provision in his contract of carriage with regard to freight and demurrage. Neither would it prevent shippers from making similar provisions in their sale contracts, such as to require the buyer to indemnify them in respect of any such payment.
Part IV False Statements in a Bill of Lading
4.1 Although we did not consult on this issue in our consultation documents, the law relating to false statements in a bill of lading is in a less than satisfactory state. Accordingly, we have decided to deal with section 3 of the Bills of Lading Act 1855, which clearly does not perform the task for which it was designed.
4.2 The main problem in this area of the law concerns the notorious decision in Grant v Norway.[176] In that case, the master of a ship signed a bill of lading for twelve bales of silk which were not shipped and the indorsees of the bill advanced money on the goods so represented to have been shipped. The Court of Common Pleas held that a ship’s master has no authority to sign a bill of lading for goods not put on board.[177] The case has rightly been criticised as being a dubious application of agency principles, inasmuch as the master certainly has authority to sign in general, and normally only he is in a position to know whether the goods were shipped.[178] Furthermore, the case was decided at a time when tort liability was very much in its infancy and seems to be inconsistent with the decision of the House of Lords in Lloyd v Grace, Smith & Co,[179] where a firm of solicitors was responsible for the fraud committed by its managing clerk in the course of his employment.[180] Scrutton submits that there would be ample justification for a higher court to overrule Grant v Norway and hold that a master is held out by the shipowner as having ostensible authority to make representations as to quantity.[181]
4.3 The rule is obviously an inconvenient one for those who in the normal course of business pay or lend money on the faith of statements made in bills of lading. Section 3 of the Bills of Lading Act 1855 seems to have been intended to solve the Grant v Norway problem. It states as follows:
“Every bill of lading in the hands of a consignee or endorsee for valuable consideration representing goods to have been shipped on board a vessel shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some part thereof may not have been so shipped, unless such holder of the bill of lading shall have had actual notice at the time of receiving the same that the goods had not been in fact laden on board: Provided, that the master or other person so signing may exonerate himself in respect of such misrepresentation by showing that it was caused without any default on his part, and wholly by the fraud of the shipper, or of the holder, or some person under whom the holder claims.”
4.4 Section 3 does not give a cause of action for the non-delivery of goods represented to have been shipped. Nor does it provide conclusive evidence against the carrier, even where the carrier’s agent had actual authority to sign.[182] Instead it merely provides conclusive evidence as against the master or other person signing the bill, against whom there is usually no cause of action since such people rarely contract personally.[183] Even if the master contracted personally with the shipper, it would often not be practically useful to sue him.[184] So as to avoid the limited effect of section 3, the courts have on occasions gone to elaborate lengths. In V/O Rasnoimport v Guthrie & Co Ltd,[185] a loading broker signed a bill of lading for goods, some of which were never shipped. The loading broker was held liable for breach of warranty of authority, although this was clearly a device to avoid the unsatisfactory result of section 3, that the shipowner was not liable on the contract.
4.5 Since the enactment by the Carriage of Goods by Sea Act 1971 of the amended Hague Rules, in particular the second sentence of Article III.4, the position has been improved.[186] Article III.4 now reads:
“Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraph 3(a)(b) and (c). However, proof to the contrary shall not be admissible when the bill of lading has been transferred to a third party acting in good faith.”
4.6 Nevertheless, this may not provide a complete solution.[187] Where no goods are shipped at all and where the contract of carriage would be made when the goods are received by or on behalf of the carrier, it is arguable that the bill of lading is null and void because it purports to record a contract which was never made.[188] It could then be that because there is no contract of carriage, and because the carrier by Article 1(a) is defined to include the owner or charterer who enters a contract of carriage with a shipper, the Rules have no application in the first place and thus the carrier is not caught by Article III.4.[189]
4.7 We recommend the abolition of the rule in Grant v Norway. Under section 3 of the 1855 Act, a bill of lading in the hands of a consignee or indorsee for valuable consideration is conclusive evidence of such shipment against a signatory of the bill, although in practice this is of minimal effect, as we have indicated. We recommend that a bill of lading, representing goods to have been shipped or received for shipment and in the hands of the lawful holder in good faith, should be conclusive evidence of such shipment or receipt as against the carrier. HREF=’#note190′>[190]
4.8 The argument has been made that if the carrier puts his signature to a statement as to the quantity of goods shipped or received for shipment, this should be no less binding where the document is a sea waybill or any other document. In other words, it is argued that clause 4 of the draft Bill appended to this Report should not be confined to transferable bills of lading but should include sea waybills and straight bills of lading. We feel unable to agree to this suggestion. Under section 1(6)(b) of the Carriage of Goods by Sea Act 1971, where the Rules apply to non-negotiable documents (such as sea waybills), the second sentence of Article III.4 does not apply. In other words, a sea waybill is merely prima facie evidence, not conclusive evidence, of the receipt by the carrier of the goods therein described. Of course, the reason why the second sentence of Article III.4 cannot apply to waybills is because it refers to the transfer of a bill of lading, and a sea waybill is not transferable. Nevertheless, the result remains that under the Hague-Visby Rules, a sea waybill is only prima facie evidence of the receipt by the carrier of the goods to which the waybill relates. This is simply one aspect of the Hague-Visby Rules under which the protection of a waybill is less then that given by a bill of lading. It is not within our remit to reform the Hague-Visby Rules. Hence, clause 4 of our draft Bill is confined to bills of lading.
4.9 It has been suggested that Article III.4 of the Hague-Visby Rules, in referring to a “bill of lading”, thereby includes straight bills of lading.[191] If this were so, we would be producing an anomaly. Within our definition of bill of lading in clause 1(2), we have excluded straight bills of lading: a straight bill would fall within our definition of sea waybill.[192] Clause 4 of our Bill does not apply to waybills or straight bills. Therefore, it would be strange if clause 4 excluded straight bills if Article III.4 of the Hague-Visby Rules covers them.
4.10 However, it appears generally agreed that a straight bill of lading is not a document of title at common law.[193] Given this, it does not fall within the meaning of bill of lading as used in the 1971 Act. If it did, there would appear to be no reason why the Act should have accorded separate treatment to bills of lading and non-negotiable receipts such as waybills and straight bills. Section 1(4) applies the Rules primarily to contracts of carriage which provide for the issue of a bill of lading or similar document of title, subject to the section 1(6)(b) gateway which allows parties to contract into the Rules when a non-negotiable document expressly provides that the Rules are to govern,[194] in which case the second sentence of Article III.4 is expressly dis-applied. The phrase “bill of lading or any similar document of title”, as used in section 1(4) of the 1971 Act and in Article I(b) of the Rules, suggests that a bill of lading must be a document of title.[195] Where it is not a document of title, it would not be a bill of lading within the meaning of the Act.
4.11 As a matter of policy, it could be said that it is anomalous if a bill of lading made out to X or order, and in X’s hands, is conclusive evidence of receipt as against the carrier, whereas it is not when X holds a bill which is simply made out “to X”. However, it would be equally anomalous if we recommended that a straight bill of lading in the hands of a third party were conclusive evidence of shipment or receipt, whereas under the Hague-Visby Rules a sea waybill is only prima facie evidence of receipt, given that straight bills of lading and sea waybills have virtually identical functions. Indeed, a straight bill and a waybill may be totally identical apart form the heading of the document and the fact that the waybill remains with the shipper whereas the straight bill is furnished to the consignee. It would be very strange if waybills or other non-negotiable receipts became bills of lading for the purposes of the 1971 Act simply because they are called bills of lading.
4.12 Out conclusions on this issue are as follows. Straight bills of lading would appear not to be documents of title at common law. They resemble waybills in all material respects, and we wish to treat them alike in legislation. If we allow a statement in a waybill or straight bill of lading to be conclusive evidence, in favour of a third party, of the receipt of goods by the carrier, we would be going beyond Article III.4 of the Hague-Visby Rules. Section 1(6)(b) of the 1971 Act rewrites Article III.4 for waybills to the effect that the waybill is merely prima facie evidence of the receipt by the carrier of the goods described in the waybill. We are aware that this produces the result that, under clause 4 of our Bill, an “order” bill of lading is conclusive evidence of shipment or receipt whereas a straight consigned bill is not. Nevertheless, there are well recognised differences between an order bill and a straight bill (or waybill): the former is transferable by indorsement, it is a document of title at common law, it provides security to lenders, it is the principal document in the 1971 Act, whereas, for instance, a non-transferable straight bill of lading can be rejected under a cif contract. Furthermore, we have no mandate to alter the Hague-Visby Rules. To assimilate straight bills of lading (and hence waybills) to order bills would, in terms of Article III.4, constitute a radical change.
Part V Sea Waybills and Ship’s Delivery Orders
(a) Introduction
5.1 One of the questions on which the Law Commission invited views in working Paper No 112 was whether reform should extend to documents other than bills of lading. It was forcefully argued on consultation that any new legislation should extend beyond bills of lading, and in particular should include sea waybills. We have taken the view that a reform which only applied to bills of lading would be too narrow, and that reform should deal with certain other documentary problems, which are discussed below.
5.2 Consultants suggested several different ways of extending the 1855 Act beyond bills of lading. One suggestion was to adopt an agreed definition of the type of document to be covered in legislation, without naming any documents specifically. The holder of such a document would be able to assert rights of action against the carrier. By defining the class of document to which the Act applies, it would be easier to construe into the Act a wider range of documents including those currently in use and others as yet unthought of, thus ensuring that the Act would have a lengthy shelf-life. Another solution eschews any sort of documentary approach and instead would allow any third party to vindicate rights against a carrier who had become obliged to deliver goods to him.[196] However, on balance, we recommend that legislation should enumerate a number of specified documents. We prefer the certainty of an approach which makes it clear which documents are covered by the Act and which are not. Since we have adopted an evolutionary approach to reform, we have built on the foundations of the 1855 Act, retaining those features of the Act which have worked well. We are fortified in this approach by the fact that the Hague-Visby Rules, the Hamburg Rules and all the modern conventions on air, road and rail transport adopt a documentary approach to reform. Those shipowners, cargo interests and their legal advisers whom we have consulted want to know which documents are included in legislation and which are not. They do not want the certainty of the 1855 regime overthrown in favour of an untried technique which makes no mention of any sort of document with which they are familiar, but rather makes everything depend on the concept of legal obligation, which is seen as too imprecise and uncertain.
5.3 The essence of our proposals is as follows. First, we wish to ensure that the holder of a bill of lading can assert rights of action against a sea carrier.HREF=’#note197′>[197] Secondly, we wish to allow the consignee named in a sea waybill to be able to assert rights of action against the carrier. Thirdly, we wish to allow the holder of a ship’s delivery order to whom the carrier has undertaken to deliver goods, to assert rights of action against the carrier. We now turn to the details of our proposals.
(b) Documents giving a right of delivery against the carrier
5.4 At common law a document of title is a document, relating to goods, the transfer of which operates as a transfer of constructive possession of the goods.[198] The document operates, in effect, as an attornment in advance to all holders: a recognition that the goods are being held for each holder and giving the holder a right to call for delivery of the goods.[199] There is for certain only one document of title at common law, namely the bill of lading representing goods to have been shipped.[200] While it is possible for other documents to become documents of title by proof of a mercantile custom to that effect,[201] the courts have not been eager to extend the number of such documents. However, section 1(4) of the Factors Act 1889 contains a wider definition of document of title[202] which includes bills of lading, dock warrants and delivery orders and “any other documents used in the ordinary course of business as proof of the possession or control of goods, or as authorising or purporting to authorise, either by endorsement or by delivery, the possessor of a document to transfer or receive goods thereby represented.”[203] The statutory definition includes orders addressed to a bailee although the bailee has made no undertaking such as an attornment to the transferee. Hence, the bailee’s duty remains to the bailor and transfer of the document does not operate as a transfer of constructive possession.
5.5 The problem with the common law position was summarised in the preamble to the Bills of Lading Act 1855. By the custom of merchants, a bill of lading was transferable by indorsement, the transfer of which could constitute a transfer of the property in the goods. Nevertheless ,the indorsee could not sue the carrier on the contract of carriage because he was not privy to it. All contractual rights of action remained in the original shipper or owner. Hence, the 1855 Act was passed so as to allow contractual rights to pass with the property. Whereas the 1855 Act sought to solve the problems so far as bills of lading were concerned, it did not encompass any other document. The primary aim of our reform is to give contractual rights of action to the holder of the bill of lading, regardless of the passing of property. The question which now follows is whether there are conclusive reasons why only bills of lading should be covered by the reform or whether other documents should be included. The two most obvious documents, other than bills of lading, for inclusion in implementing legislation are sea waybills and ship’s delivery orders.
(c) Sea Waybills
5.6 A sea waybill is a document which contains or evidences an undertaking by the carrier to the shipper to deliver to the person who is for the time being identified as being entitled to delivery. Sea waybills are broadly similar to “straight” bills of lading found in the US Federal Bills of Lading Act 1916 (the Pomerene Act). It has been argued, most notably by Sir Anthony Lloyd,[204] that a reform of the Bills of Lading Act 1855 should include sea waybills, so as to enable the consignee named in a waybill to sue the carrier on the terms of the contract of carriage. A sea waybill is a receipt for the goods, but it is non-transferable and is not a document of title.[205] In fact, neither bills of lading nor sea waybills are documents of title in the sense that they transfer ownership. Ownership passes by reason of the underlying transaction. Bills of lading and sea waybills have been called documents of possession in that they indicate which party has the right to demand possession of the goods on discharge, the main difference being that whereas the bill of lading can transfer constructive possession more than once, the sea waybill cannot.[206]
5.7 The main advantage of the sea waybill is that, unlike a bill of lading, it does not have to be transmitted to the consignee in order for the goods to be surrendered by the carrier on arrival. It also has the advantage that the shipper can vary his delivery instructions to the carrier at any time during transit.[207] The shipper retains the waybill and delivery is made to the consignee named in the waybill upon acceptable proof of his identity. The sea waybill is therefore of much use in the short sea trades, in the container business and where a bill of lading is not necessary as security for payment, such as in the case of shipments between associated companies.
5.8 The main problem with the sea waybill is that it is unclear whether the consignee can sue under the contract of carriage. A sea waybill is not a document to which the Bills of Lading Act 1855 applies.[208] While it would be possible to stipulate that the shipper enters the contract of carriage both on his own behalf and as agent for the consignee named in the waybill, the preservation of the shipper’s right to dispose of the cargo until the point of delivery may be inconsistent with the notion that the shipper contracted as agent for the consignee.[209] It remains undecided whether the principle in Dunlop v Lambert[210] would enable the shipper to recover substantial damages against the shipowner to be held on account for the consignee named in the waybill.[211]
5.9 Sea waybills would, no doubt, be even more widely used were the consignee able to sue the carrier under the contract of carriage. Although it was argued by one consultant that the inclusion of waybills in the Act would have little practical effect because the trades in which they are used rarely give rise to cargo claims, we are not persuaded by this reasoning. We think that it would be inappropriate, in a modern reform of the Bills of Lading Act, not to make provision for sea waybills. Whereas bills of lading are important where a document of title is required, as where the goods are to be sold in transit or where a bill is required for purposes of financing under a documentary credit, in cases where they are not needed for such purposes a waybill may be much more convenient for the reasons given above. The United Nations Conference for Trade and Development has commended waybills to the market as one of the main instruments against documentary fraud,[212] and there is a widespread desire in many liner trades to do away with bills of lading altogether.
5.10 It is commercially inconvenient that the consignee named in a waybill is unable to sue the carrier. A sea waybill is a paradigm case of a contract for the benefit of a third party. Only the common law’s insistence on the doctrine of privity prevents the consignee from suing the carrier. It was this doctrine which the 1855 Act sought to circumvent for bills of lading. However, waybills had not then been invented and they do not fall within the ambit of the 1855 Act. In a modern reform of the Bills of Lading Act, it would expose English law to further criticism if the opportunity to include sea waybills were not taken.
5.11 Reform would be for the benefit of cargo and ship alike. For cargo interests, because it is unsatisfactory that the only person who has suffered loss (the consignee) cannot sue, even though the contract was made for his benefit, whereas the only person who has a contractual right of action (the shipper) may have no incentive to sue where he has suffered no loss, and may in any event be unable to recover substantial damages. For shipowners, because any actions brought against them will be on the terms of the contract of carriage. Such liability is clearly preferable to the potentially greater and more indeterminate liability in tort.[213]
5.12 Although such a reform would be a further inroad into the doctrine of privity of contract, it is a necessary inroad given the increasing commercial importance of sea waybills. It is a limited inroad and does not give rise to the possibility of an indeterminate class of persons being able to sue the carrier. Modern conventions on air, rail and road transport all give the consignee named in a waybill the right to sue the carrier. HREF=’#note214′>[214] It would be anomalous if new legislation on rights of suit did not give the consignee named in a sea waybill a similar right.
5.13 Since the sea waybill contract remains a contract personal to the shipper and the carrier, and given that the shipper will (unless the contract otherwise provides) normally retain his rights of disposal until delivery and thus will usually be able to change the name of the consignee at any time before delivery, the third party who will be entitled to sue under our recommendations[215] will be the consignee named in the sea waybill or such other person to whom the carrier is directed to deliver in accordance with the shipper’s instructions.[216]
5.14 We are not attempting to produce a legislative code for sea waybills and hence we are not trying to solve all the problems associated with their use.[217] However, a number of other questions require consideration.
(i) Rights of Disposal
5.15 One problem arises from the fact that the carrier does not give delivery to the holder of the waybill. Instead, the person named in the waybill furnishes acceptable proof of his identity to the carrier who thereupon makes delivery. Whereas, as a general rule, a carrier is protected from liability if he delivers to the first person presenting an original bill of lading,[218] the position of the carrier who delivers to a person other than the one entitled under the waybill is unclear. Unless the waybill contains express terms to the contrary, only the shipper can give the carrier instructions as to delivery.[219] It is one of the merits of sea waybills that the shipper can, at any time before delivery, direct the carrier to deliver the goods to a person other than the named consignee. The carrier would, prima facie, be obliged to comply with this order since normally the contract would be construed as one to deliver to the named consignee or to such other person as the shipper might direct.[220] There is then a conflict which needs to be resolved. On the one hand, the shipper wishes to retain his rights of disposal at any time before delivery. On the other hand, the named consignee wants delivery made to him in accordance with the carrier’s undertaking. The carrier will not wish to resolve the conflict in favour of either in case he is liable to the other.[221]
5.16 The existing conventions on carriage by air, road and rail[222] do not provide clear guidance on this problem.[223] Each of the conventions adopts a substantially similar technique aimed at resolving the dispute and each leaves open a number of questions. Taking, by way of example, the Carriage by Air Act 1961 giving effect to the Warsaw Convention,[224] Article 12 gives the consignor a right of disposal which ceases in effect at the time the cargo arrives at the place of destination. Subject to this right of disposal, Article 13 gives the consignee the right to delivery of the cargo. However, the position is not clear in at least two cases.
5.17 The first case is where the consignor in breach of the contract of sale exercises a right of disposal, let us say after property has passed and where the consignor has none of the rights of the unpaid seller under the Sale of Goods Act 1979.[225] Benjamin[226] submits that the carrier would not be liable either in contract or conversion because, although the Convention does not expressly state that the carrier is bound to obey the orders of the consignor, such an obligation should be implied from the provisions of the Convention relating to the right to dispose of the cargo.
5.18 Secondly, the consignor may have a right of stoppage in transit under the Sale of Goods Act 1979 even though the consignee had a right of delivery under the Convention. Such a case would arise when the consignee had not paid and was insolvent and where the goods had arrived at the place of destination but had not been delivered to the consignee. Benjamin[227] submits that the carrier would not be liable to the consignor if he obeyed the orders of the consignee on the grounds that, where the Convention conflicts with the Sale of Goods Act, the Convention should prevail being specifically designed to regulate the relations arising out of the contract of carriage.
5.19 One possible solution which was canvassed was to give express protection in implementing legislation to carriers who make delivery in accordance with their instructions. Accordingly, the carrier would not be liable if he had exercised all reasonable care in delivering to the named consignee or otherwise in accordance with the shipper’s instructions. However, on balance, we have decided not to make express provision of this kind, since it would merely purport to replicate a contractual provision which the parties would be free to make. If the waybill contract provides the carrier with a defence against the shipper in cases where the carrier has taken all reasonable steps to deliver to the named consignee or otherwise in accordance with the shipper’s instructions, the carrier would under our recommendations have such a defence in any action by a third party, since the third party’s rights of suit are on the terms of the contract of carriage. If the waybill contract does not provide such a defence, we do not think that there are compelling reasons why the legislature should re-allocate an agreed risk by providing such a defence instead.
5.20 It should also be noted that in those international conventions which give rights of suit simply to the named consignee,[228] there is a potential conflict where the shipper instructs the carrier to deliver to someone else. There is no such conflict under our recommendations because the third party beneficiary in the case of a sea waybill is not the named consignee simpliciter but rather the person who, in accordance with the undertaking contained in the waybill, becomes the person to whom delivery is required to be made, ie the named consignee or such other person to whom the carrier is directed to deliver.[229] In those cases there the original consignee becomes replaced by a new name, or where the shipper simply directs the carrier to deliver to someone else, the original consignee no longer comes within the ambit of the document and ceases to have rights of suit under our proposals.[230] Any remedy which the original consignee has, in cases where the seller has given instructions to the carrier which are in breach of the contract of sale, will be under the contract of sale. The carrier should not be required to make investigations to see whether his instructions amount to a breach of the seller’s sale contract.
(ii) Liabilities of the consignee
5.21 The question also arises whether the consignee named in a sea waybill can be sued under the terms of the contract of carriage. Our approach to liabilities under a bill of lading followed, broadly speaking, the principle that he who takes the benefit should also take the burden. We recommend the adoption of a similar approach to sea waybills. This approach is to be found in the modern international Conventions on air, road and rail transport.[231] For instance, under Schedule 1, Article 13.1 of the Carriage by Air Act 1961, on arrival of the cargo, the consignee is entitled to require delivery of the air waybill and of the cargo on payment of the charges due and on complying with the conditions of carriage set out in the air waybill. Similarly, under Article 13.2 of the CMR Convention, incorporated in the Carriage of Goods by Road Act 1965, the consignee who requires delivery or seeks to enforce against the carrier any rights arising from the contract of carriage shall pay the charges shown to be due on the consignment note.[232]
5.22 Accordingly, under our proposals, the person who takes or demands delivery of the goods to which the waybill relates or otherwise makes a claim against the carrier will become subject to any contractual liabilities as if he had been an original party to the contract of carriage.
(iii) Rights of the shipper
5.23 We also recommend that, in the case of a sea waybill, the consignee’s rights should be without prejudice to any rights which the shipper might have.[233] It should be noted that, under Article 14 of the Warsaw Convention, scheduled to the Carriage by Air Act 1961, the consignor and the consignee may sue, whether they act in their own interest or that of another. We do not wish to deprive the shipper of any rights of disposal which he may possess under the waybill contract and which may allow him to alter his delivery instructions. Of course, whether the waybill shipper agrees in the contract of carriage that he should at any stage forfeit his contractual rights (whether of disposal or generally) in favour of the consignee, only the consignee will have rights of suit under our proposals. Implementing legislation makes it clear that the consignee’s rights are without prejudice to the shipper’s. Where the shipper has agreed with the shipowner to divest himself of rights, only the consignee will have rights. It is true that, in the case of bills of lading, we recommend that the shipper loses his rights of suit once someone else becomes the lawful holder. It could, therefore, be said to be anomalous that waybill shippers are treated differently. Nevertheless, we feel justified in treating bills of lading and sea waybills differently on this point. Although the two documents have similarities, they have their differences, the most important of which is that a bill of lading is a transferable document of title at common law, whereas the waybill is not. We have already given our reasons why, in the context of bills of lading, we propose to confine rights to the lawful holder of the bill.[234] These arguments do not apply in the case of sea waybills. It is crucial to the utility of a sea waybill that a shipper should be capable of retaining his contractual rights until the time of delivery. Having a non-transferable document, he is able to direct the carrier to deliver to another person at his pleasure before delivery. Furthermore, allowing waybill shippers to sue in addition to consignees would not be a change in the law. At present, waybill shippers can sue in contract and there may be circumstances when consignees may sue in tort. It is clearly preferable for shipowners to have waybill consignees suing on the terms of the contract of carriage rather than in tort. In practice, shipowners can avoid actions by more than one party by an appropriate contractual provision along the lines discussed above, and which is found in the C.M.I. Uniform Rules for Sea Waybills.
(iv) Liabilities of the shipper and the position of the owner
5.24 As with the shipper under a bill of lading,[235] we recommend that the liabilities of the waybill consignee should be without prejudice to any liabilities of the waybill shipper.[236] Neither do we recommend that there should be any exclusion of the right of the owner of the goods to sue in tort. In Gatewhite Ltd v Iberia Lineas Aereas de Espana S.A.,[237] a case relating to an air waybill, it was held that, in addition to the consignor and consignee being able to sue, the owner of the goods could also exercise his common law rights against the carrier in respect of loss of, or damage to, the goods. Gatehouse J said that it would be unfortunate if the right of suit had to depend on the ability and willingness of the consignee alone to take action particularly when he may merely be a customs clearing agent, a forwarding agent or a bank.
(d) Ship’s Delivery orders
5.25 Delivery orders come in various kinds. A delivery order may refer to an order by the owner to the person in possession to deliver them to the person named in the order,[238] although it may also refer to a document whereby the person in possession states that he will deliver to a named person or the holder.[239] In the context of carriage by sea, there is an important distinction between a ship’s delivery order and a merchant’s delivery order.
5.26 Ship’s delivery orders[240] are either (a) documents issued by or on behalf of shipowners while the goods are in their possession or under their control and which contain some form of undertaking that they will be delivered to the holder or to the order of a named person; or (b) documents addressed to a shipowner requiring him to deliver to the order of a named person, the shipowner subsequently attorning to that person. Where the order is issued to the ship and authorises, directs or orders the carrier to deliver to a certain person, it confers no rights against the carrier until the carrier attorns to the person to whom delivery is due. Similarly, where such a delivery order is transferred, there would have to be a fresh attornment to the transferee before he acquired a right to possession against the carrier.
5.27 The commercial need for ship’s delivery orders stems from the fact that a seller may wish to sell parts of a bulk cargo to a number of different buyers while the goods are at sea. Where a single bill of lading covers the whole consignment, the seller cannot give the bill to each of the buyers, so he stipulates for the right to tender a ship’s delivery order in respect of each of the smaller parcels. Many standard form c.i.f. contracts, such as the GAFTA No 100 contract for shipment of feeding stuffs in bulk, allow the seller to tender a ship’s delivery order. To be a good tender, however, the ship’s delivery order must as far as possible place the holder in the position in which he would have been had he received a bill of lading. The bill of lading essentially gives to the buyer three entitlements:
(i) The transfer of constructive possession of the goods by reason of the transfer of the bill itself, the carrier undertaking to keep the goods for the holder and deliver them to him.
(ii) The right to demand delivery from the carrier on presentation of the bill.
(iii) The right to sue the carrier under section 1 of the Bills of Lading Act 1855.
5.28 A ship’s delivery order is not a transferable document of title at common law and the holder of a ship’s delivery order has no rights of suit under the 1855 Act. However, in many situations the tender of a ship’s delivery order may put the holder in as good a position as he would have been had he received a bill of lading. A shipowner can give the buyer a right to possession of the goods, and a right of delivery on presentation of the document, in the following ways. First, the carriermay be instructed by the seller to deliver the goods to the buyer, with the carrier thereupon attorning to the buyer, that is, acknowledging that he holds the goods for his benefit. Secondly, the carrier can directly undertake to deliver the goods to the buyer or his order.[241] However, the holder of a ship’s delivery order cannot sue the carrier under the 1855 Act, which applies only to bills of lading. It may be possible for a Brandt v Liverpool contract to arise providing that, when the holder presents the delivery order to the ship, he furnishes some consideration for the ship’s attornment or issue of the delivery warrant. This was the position in Cremer v General Carriers (The Dona Mari)[242] where the holder of a ship’s delivery order, which incorporated by reference the terms of the bill of lading, presented it to the ship and paid the freight on the portion of the goods covered by the order. However, it may not be possible to imply such a contract where the buyer does not furnish consideration, as for instance where freight has been prepaid or where no delivery is made at all, or where the conduct of the parties is equally consistent with an intention not to contract as with an intention to contract.[243]
5.29 We take the view that, where the carrier undertakes to deliver the goods let us say on presentation of the delivery order, commercial expedience requires that the carrier, having given the undertaking, should be bound by it.[244] A ship’s delivery order is really designed to act like a “mini” bill of lading, the main difference being that a ship’s delivery order is issued after shipment and is usually issued in respect of a smaller cargo. It is sometimes possible to arrange for the ship’s agent at the port of discharge to accept a surrender of the original bill and re-issue a number of fresh bills. However, this practice has been judicially disapproved,[245] and the use of ship’s delivery orders commended as the only legitimate way of splitting a bulk cargo, on the ground that bills of lading have to be issued on shipment or, if later, without undue delay and within the ordinary course of business. Thus, a ship’s delivery order may look like a bill of lading and would be one but for the fact that it was not issued on shipment.
5.30 Furthermore, if ship’s delivery orders were excluded from reform, it would weaken the position of the buyer of part of a bulk cargo who is only able to receive a ship’s delivery order rather than a bill of lading. We do not think that the holder of a ship’s delivery order to whom the carrier has undertaken to deliver should be left to the vagaries of a Brandt v Liverpool contract in order to assert contractual remedies against the ship. If it is correct to give a right of action to the person who has acquired a right of delivery against the carrier, this should apply indifferently to the bill of lading holder and to the person to whom delivery is due under a ship’s delivery order. Hence, we recommend that the holder of a ship’s delivery order to whom a sea carrier has undertaken to deliver the goods be given statutory rights of suit against the carrier. HREF=’#note246′>[246] The question of the terms of the relationship between the carrier and the holder will depend on the facts of the particular case, although usually the bill of lading will be incorporated by reference.[247]
5.31 There have been very few calls for merchant’s delivery orders to be included within a reformed Bills of Lading Act. A merchant’s delivery order typically involves an order by a seller promising delivery to his buyer. It may involve an order by the seller to his agent at the port of destination to deliver the goods to the holder.[248] A variation involves delivery orders being issued by third parties of undoubted integrity. Such were the delivery orders issued in The Gosforth.[249] The bill of lading is handed to the third party, who then issues delivery orders in his own name. He presents the bill of lading to the ship when she arrives and causes deliveries of cargo to be made against, and in the amounts specified in, the delivery orders. A merchant’s delivery order is fundamentally different from a ship’s delivery order in that it does not purport to contain any contract with the shipowner. It will be recalled that in The Gosforth, S sold to B a quantity of citrus pellets and B re-sold to 13 sub-buyers who received delivery orders from an independent third party. When S was not paid, he attached the goods and the District Court of Rotterdam held that the sub-buyers were unable to resist the attachment. The President of the Court said:
“… A merchant’s delivery order, such as that under discussion here, whether in accordance with the applicable rules of English law or Dutch law, grants neither possession nor property to the holder of such an order but merely a right to require delivery from the party who issued the order, that is, ICM in the present case.”[250]
Since merchant’s delivery orders are fundamentally different from ship’s delivery orders, we do not recommend that merchant’s delivery orders should be covered in our reforms.
Part VI Documents Forming Part of an Electronic Record
6.1 A question which, though not covered in our consultation documents, was raised by consultants, concerns whether our proposals should make provision for documents forming part of an electronic record.
6.2 An increasing amount of work is being done on ways to eliminate the need for the physical transfer of documents.[251] Problems associated with paper transactions in international sales include theft, forgery and delay while the documents travel from one country to another. One way around these problems is associated with the move towards paperless transactions involving the teletransmission of trade data, commonly referred to as electronic data interchange (E.D.I.) or electronic data processing (E.D.P.).[252] This involves the reproduction at the port of destination of data which is transmitted electronically from the port of shipment.[253] Just as paper-based transfers can be expected to shift towards the non-negotiable waybill, likewise E.D.I. may eventually render otiose the concept of negotiability.[254] A single paper transfer will be replaced by a series of teletransmitted undertakings by the carrier to successive transferees, the communication of each undertaking giving constructive delivery to the person receiving the communication.
6.3 Although much work has been done in the direction of paperless transfers, there are equally formidable technical and legal problems still to be overcome before paperless transactions become the norm in international sales. Nevertheless, if paperless transactions were not to be covered in a reformed Bills of Lading Act, and if in the next few years they were to become common, we would again be in the position of the Act failing to meet the needs of its users. Following a suggestion made at one of the seminars to which reference was made earlier,[255] which attracted considerable support, we recommend that implementing legislation should allow the Secretary of State to make provision by regulations for information given by means other than in writing to be of equivalent force and effect as if it had been given in a written document.[256]
Part VII Summary of Recommendations
7.1 In this part of the report we summarise our principal recommendations for reform.
(1) The lawful holder of a bill of lading should be entitled to assert contractual rights against the carrier, irrespective of the passing of property and regardless of whether he has suffered loss himself, if necessary being able to recover substantial damages for the benefit of the person who has suffered the loss.
[Paragraphs 2.22 and 2.27; clauses 2(1) and 2(4)]
(2) The shipper and any intermediate holder of a bill of lading should not be entitled to rights of suit after someone else has become the lawful holder of the bill of lading.
[Paragraphs 2.34-2.41; clause 2(5)]
(3) A bill of lading should be capable of indorsement so as to pass contractual rights even after delivery of the goods has been made, providing that the indorsement is effected in pursuance of arrangements made before the delivery of the goods.
[Paragraphs 2.42-2.44; clause 2(2)]
(4) Where the holder of a bill of lading, or any other person entitled to sue under our recommendations, takes or demands delivery of the goods, or otherwise makes a claim under the contract of carriage against the carrier, he should become subject to any contractual liabilities as if he had been a party to the contract of carriage, without prejudice to the liabilities as if he had been a party to the contract of carriage of the original shipper.
[Paragraphs 3.19 and 5.22; clause 3]
(5) The rule in Grant v Norway should be abolished. A bill of lading, representing goods to have been shipped or received for shipment and in the hands of the lawful holder, should be conclusive evidence against the carrier of such shipment or receipt.
[Paragraph 4.7; clause 4]
(6) The consignee named in a sea waybill, or such other person to whom the carrier is duly instructed to deliver under the terms of the sea waybill, should be able to sue on the contract of carriage, without prejudice to the rights of the original shipper.
[Paragraphs 5.13 and 5.23; clause 2(1) and 2(5)]
(7) The person entitled to delivery in accordance with an undertaking contained in a ship’s delivery order should be able to assert contractual rights against the carrier on the terms of the undertaking.
[Paragraph 5.30; clause 2(1)]
(8) The Secretary of State should be empowered to make provision by regulations for information given by means other than in writing to be of equivalent force and effect as if it had been given in writing.
[Paragraph 6.3; clauses 1(5)-1(6)]
(Signed) PETER GIBSON, Chairman, Law Commission
TREVOR M ALDRIDGE
JACK BEATSON
RICHARD BUXTON
BRENDA HOGGETT
MICHAEL COLLON, Secretary
C K DAVIDSON, Chairman, Scottish Law Commission
E M CLIVE*
PHILIP N LOVE
I D MACPHAIL
W A NIMMO SMITH
KENNETH F BARCLAY, Secretary
15 February 1991
* Subject to the disagreement expressed below
NOTE OF PARTIAL DISSENT
BY E M CLIVE
I agree that:
(a) the Bills of Lading Act 1855 should be repealed and replaced as soon as possible;
(b) the contractual rights, and rights to sue on the contract, of the person to whom delivery is to be made under a contract for the carriage of goods by sea should not be linked to the passing of property;
(c) reform should not be confined to bills of lading;
(d) where the person entitled to delivery exercises his rights he should be liable, and liable to be sued, for any payments (such as freight) for which he is made liable under the contract.
I also agree that a bill of lading representing goods to have been shipped or received for shipment and in the hands of a lawful holder should be conclusive evidence against the carrier of such shipment or receipt. I think, however, that this rule should apply where the lawful holder is the consignee under a bill of lading in favour of a named consignee only.[257] The policy behind the rule is that a lawful holder, who may have parted with money in exchange for the bill,[258] should be able to rely on the statements in the bill. I see no reason why this policy should apply in the case of a named consignee who takes delivery under a bill made out to him “or order” but not in the case of a named consignee who takes delivery under a bill made out to him alone.
I do not agree that all the shipper’s rights under the contract of carriage should be extinguished on the transfer by him of a bill of lading. In my view this is unnecessary and could lead to unjust and unacceptable results.
The draft Bill draws a distinction between cases covered by a bill of lading[259] and cases covered by a sea waybills. In the case of a bill of lading the shipper loses all his rights under the contract of carriage “contained in or evidenced by” the bill as soon as he transfers the bill to someone else. In the case of a sea waybill the shipper, unless the contract provides otherwise, retains his rights under the contract of carriage “contained in or evidenced by” the waybill even after the goods have been delivered to the consignee named in it. In the case of the bill of lading the policy is one of extinctive transfer of rights by operation of law. In the case of the sea waybill the policy is one of additional third party rights by operation of law. I consider that this difference in treatment is unjustified and that the policy based on additional third party rights should apply whatever may be the nature of the shipping documents.
The proposed rule for bills of lading could lead to unfortunate results where a breach of the contract of carriage “contained in or evidenced by” a bill causes loss to the shipper and to him alone. The loss may be due to a breach of the contract of carriage which causes delay in delivery in circumstances where this causes loss to the shipper but not to the consignee. Or it may be caused by a refusal by the carrier to pay a deferred rebate on the freight, intended for the shipper alone. Or it may be caused by the loss of the goods at sea where, under the terms of a special sale contract (ie not a normal cif contract), the risk of such loss remains the shipper’s. Or it may be caused by the failure of the carrier to load the goods at the time agreed under the contract, thus causing extra storage costs to the shipper but not affecting the consignee, who may well still receive the goods at the time expected. These examples are not exhaustive. Other cases could occur where the shipper might want to sue under his contract to recover a loss caused to him and him alone. Such cases will be rare, because normally the risk of loss will pass to the consignee on shipment, but they could happen.
It seems to me to be wrong to deprive a shipper of his rights to sue for his own losses caused by the breach of a contract to which he was a party. The report puts forward several arguments in support of this policy.[260]
First, the proposed extinction of the shipper’s rights is said to accord with the present law. This is probably true, in those cases covered by section 1 of the Bills of Lading Act 1855.[261] However, it is not true in those cases not covered by the 1855 Act. In such cases the shipper retains his rights under the contract of carriage, the holder of the bill of lading has his document of title, and the holder may be able to establish an implied contract with the carrier on the terms in the bill of lading. There is, so far as I am aware, no suggestion that the retention of rights by the shipper in such cases deprives the bill of lading of its value as a document of title, exposes the carrier to excessive actions by shippers, or causes any other problems.
Secondly, the report says that the shipper has ways of protecting his position. He can, for example, retain the bill of lading and sue on it. However, he may not be able to minimise his loss except by selling to someone who requires a bill of lading. In some cases he may be contractually bound to transfer the bill of lading. Moreover, he may not realise that transfer of the bill of lading cuts off rights against the carrier which he would naturally expect to retain. The new law should not set traps for people who trade in a normal and natural way. It should not require exporters to seek advice from specialist lawyers before engaging in straightforward commercial transactions. A shipper can also, in some cases, make express contractual provision to protect his position. However, he may not be able to do so in all cases. A trader cannot force anyone else to contract with him on certain terms, or at all. A buyer who can buy elsewhere on straightforward terms may prefer to do so, rather than become involved in complicated legal issues. And again there is the point that the law should not force shippers to resort to complicated legal devices to protect their rights. It is also said that matters such as deferred rebates on freight will typically be covered by a separate agreement. That may be so, but a provision as to the freight payable is a normal part of a contract of carriage and there is no reason why the contract of carriage should not contain provisions on freight which the shipper may, in certain circumstances, wish to enforce against the carrier. We are recommending legislation for a long time ahead and for contracts all over the world which adopt our law as the proper law of the contract. The legislation would apply to small “one-shot” operators as well as to big “repeat” operators. We should not, in my view, build in potential injustices, on the assumption that these would not occur in the typical case. The law reports are littered with atypical cases.
In paragraph 2.34(i) of the report, it is argued that to allow the shipper to sue “in addition to an expanded category of third parties” would be further to increase the number of people who can sue carriers. However, in practice, the shipper alone would have an interest to sue for his own loss. I see no unfairness in allowing the carrier to be sued by someone who has contracted with him and who has suffered loss as a result of his breach of contract. Indeed, I find it surprising that one of the reasons given for cutting off a contracting party’s rights to recover losses caused to him by a breach of contract is that this will protect the party in breach from actions. In any event, the danger to carriers of over-exposure to actions by shippers seems more theoretical than real. In most cases the risk of loss or damage will have passed to the consignee and the shipper will have no interest to sue.
In paragraph 2.34(ii), the spectre is raised of “a multiplicity of actions brought by previous holders of a bill of lading”. However, no-one is suggesting that intermediate holders should retain rights once they have dropped out of the chain. The position of the shipper is different from that of an intermediate holder. The shipper is an original contracting party and can, in my view, reasonably expect to retain certain rights under the contract of carriage even after parting with the bill of lading. An intermediate holder is in a different position. He acquires rights only in his capacity as holder of the bill and can reasonably expect to lose them when he ceases to be holder. The draft Bill, in clause 2(5), recognises that in relation to sea waybills and ship’s delivery orders the shipper, as an original contracting party, is in a different position from those who have held intermediate rights.
In paragraph 2.34(iii), it is argued that if a shipper who transfers a bill of lading were to retain rights, “it would enable him to undermine the security of the new holder by anticipatory action, in addition to exposing the carrier to inconsistent claims”. I do not accept this. The carrier would normally be obliged to deliver only to the holder of the bill. Once the shipper ceased to be holder he would no longer be able to claim delivery of the goods. To assert a claim to delivery of the goods he would have to have the bill reindorsed to him. That is the position under the present law in those cases where the 1855 Act does not apply, and where the shipper accordingly retains contractual rights. It was also the position before 1855 when the shipper always retained contractual rights. Retention of contractual rights by the shipper did not, does not and would not undermine the security of a bill of lading or its utility as a document of title. I do not consider that there would be a problem of shippers obtaining compensation for losses actually suffered by holders and thus exposing carriers to double claims or leaving holders without a remedy.[262] Nor do I consider that there would be insuperable drafting difficulties in allowing shippers to retain their contractual rights.[263]
In paragraph 2.34(iv), it is claimed that the statutory assignment model of the 1855 Act is familiar and has worked well. It is, however, recognised that it gives rise to a logical difficulty in certain cases.[264] There might be something to be said for not perpetuating this difficulty. For the rest, I do not think that a carrier can legitimately complain if a shipper with whom he has contracted can sue him to recover a loss caused to the shipper by the carrier’s breach of contract. The report, significantly, does not regard this result as unacceptable in the case of sea waybills or ship’s delivery orders, or even in the case where there is a bill of lading but the shipper’s contract of carriage took the form of a charterparty.
This last point is dealt with in paragraph 2.52 of the report, where it is said that where the shipper is a charterer his rights against the shipowner under the charterparty will not be transferred on the indorsement of a bill of lading. It seems to me to be anomalous that the shipper should retain his rights under the contract of carriage where it is in the form of a charterparty but not in other cases.[265] In paragraph 2.52 of the report it is pointed out that there are “no compelling policy reasons why the charterer should be deprived of rights of suit under his contract of carriage simply because he indorses what is, for him, a receipt”. I respectfully agree, and I think this applies even if the receipt has words on it containing, or referring to, many or all of the terms of the contract of carriage, and even if the contract of carriage is not in the form of a charterparty. To introduce a distinction between charterparties and other contracts of carriage under or pursuant to which a bill of lading is issued – where no such distinction appears on the face of the draft Bill – seems to me to be confusing and unsatisfactory.
The report sets out in paragraph 5.23 the reasons for the different treatment of the shipper’s rights in the case of a bill of lading and a sea waybill. First, it is said that a bill of lading is a transferable document of title at common law, whereas the sea waybill is not. I do not see why this should affect the shipper’s contractual rights. The possession of an appropriate document of title is just one of several ways of identifying the person to whom the carrier is to deliver the goods under the contract of carriage. It is not clear why the method of identification chosen should fundamentally affect the rights of the shipper. Secondly, the report says that it is crucial to the utility of a sea waybill that the shipper should be capable of retaining his contractual rights until delivery. That does not, however, explain why the shipper who has transferred a bill of lading should lose his contractual rights. Nor does the fact that allowing shippers to retain their rights where the contract is covered by a sea waybill would not be a change in the law. Finally, it is said that it is better for shipowners to have waybill consignees suing in contract rather than tort. That is generally true, but irrelevant. It has nothing to do with shippers’ rights.
The definition of bill of lading in clause 1(2) does not include a straight consigned bill of lading. A bill of lading in favour of a named consignee (without any words such as “or order” which would make it transferable by indorsement[266] ) is regarded as a sea waybill for the purposes of the draft Bill. If a shipper takes a bill of lading to shipper’s order, and indorses it to a named person, who takes delivery of the goods in exchange for the bill, the shipper loses his rights under the contract contained in or evidenced by the bill. If he takes a bill of lading in favour of the named consignee from the beginning, and transfers it to that consignee, who takes delivery of the goods in exchange for the bill, the shipper retains his rights under the contract. I cannot see any good reason for treating the shipper differently in these two cases.
I am not persuaded by the report’s arguments on shippers’ rights and, for the reasons given above, cannot agree that all the shippers’ rights under the contract of carriage should automatically be extinguished when he transfers a bill of lading of a certain type[267] in certain circumstances.[268] This seems to me to be unnecessary. Bills of lading would continue to function as useful documents of title without this rule: they do so at present in cases falling outside the 1855 Act, and their position would be strengthened under the main reform proposed. It also seems to me to be undesirable because (a) it creates a risk of injustice to shippers in occasional exceptional cases and (b) it creates a distinction between the effects of different documents for which there appears to be no justification.
Finally, if it is decided that any Bill introduced in Parliament should adopt a uniform rule on the question of the shipper’s rights under a contract of carriage, then it would, in my view, be worth considering a drafting approach which was not based on specific named documents but which simply gave the deliveree (ie the person to whom the carrier is bound to deliver the goods) a statutory right corresponding to the carrier’s obligation to deliver to him. Such an approach would require only two main clauses, in addition to a clause corresponding to clause 4 of the draft Bill (but applying to all bills of lading) and the usual final clause. The first clause would be roughly to the effect that where, under or pursuant to a contract for the carriage of goods by sea, the carrier is (or was, immediately prior to the delivery of the goods) obliged to deliver goods to a third party on certain terms, that third party has corresponding rights against the carrier and is entitled to sue the carrier accordingly, as if the carrier were contractually bound to him on those terms. The second clause would be designed to make it clear that where the carrier’s obligation to deliver to the third party is conditional on that third party meeting or assuming any liability, then the third party’s rights are also so conditional and he is, if he exercises his right to obtain delivery, liable, and liable to be sued, accordingly. I believe that an approach of this kind would have several important advantages over a document-based approach. It would be simpler, easier to use without a detailed knowledge of existing case law, and of wider coverage. It would apply in cases where there was a contractual provision for delivery to a third party but where none of the specified shipping documents was issued. It would enable new forms of commercial practice, whether document-based or computer-based, to develop without the need for subordinate legislation.
There is a certain attraction in the idea (paragraph 5.2 of the report) that legislation on this subject should refer to well-known documents, familiar to commercial people and their advisers. On the other hand, the problem does not lie in the documents. It lies in the law, and there is perhaps something to be said for a directly expressed legal solution to a legal problem. The legal idea that the carrier may be obliged by contract to deliver the goods to a third party does not seem to me to be very difficult or imprecise or uncertain (paragraph 5.2). It is a familiar idea. Parties to contracts have been regulating the precise content of the carrier’sobligation, within the framework of the general law, for hundreds of years. There is no difficulty there. The difficulty is that there is a legal impediment, in cases not covered by the 1855 Act, to conferring clear corresponding rights on the third party. That impediment should, in my view, be removed in relation to all contracts for the carriage of goods by sea, and not just in relation to particular documents, and it should be removed in as simple and direct a way as possible.
(Signed) E.M. CLIVE
APPENDIX A
Draft Bill
Short title, repeal, commencement and extent.
1855 c.111.
1. – (1) This Act applies to the following documents, that is to say –
(a) any bill of lading;
(b) any sea waybill; and
(c) any ship’s delivery order.
(2) References in this Act to a bill of lading –
(a) do not include references to a document which is incapable of transfer either by indorsement or, as a bearer bill, by delivery without indorsement; but
(b) subject to that, do include references to a received for shipment bill of lading.
(3) References in this Act to a sea waybill are references to any document which is not a bill of lading but –
(a) is such a receipt for goods as contains or evidences a contract for the carriage of goods by sea; and
(b) identifies the person to whom delivery of the goods is to be made by the carrier in accordance with that contract.
(4) References in this Act to a ship’s delivery order are references to any document which is neither a bill of lading nor a sea waybill but contains an undertaking which –
(a) is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and
(b) is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.
References to “Recommendations” are to the Summary or Recommendations in Part VII of this report.
GENERAL
The Bill contains new provisions relating to the rights of suit of those concerned with contracts of carriage of goods by sea.
Clause 1
This clause enumerates the shipping documents to which the Act applies and empowers the Secretary of State to extend the provisions of the Act to transactions effected by electronic data interchange (E.D.I.).
Subsection (1)
This subsection is self explanatory.
Subsection (2)
This subsection implements the policy discussed in paragraphs 2.48 and 2.50 of the report.
Subsection (3)
This subsection defines “sea waybill” for the purposes of the Act. A sea waybill is, in essence, a receipt which contains or evidences a contract for the carriage of goods by sea under which the carrier undertakes to the shipper to deliver to the person who is for the time being identified as being entitled to delivery. In the case of bills of lading, there were doubts as to whether “received for shipment” bills came within the ambit of the 1855 Act, doubts which we have settled in subsection 1(2). There is nothing within subsection 1(3) which operates to exclude “received for shipment” sea waybills from the Act. Indeed, part of the definition of “sea waybill” is that it is a receipt for goods.
Subsection (4)
This subsection defines “ship’s delivery order” for the purposes of the Act. A ship’s delivery order is, in essence, a document which contains an undertaking by the carrier to deliver the goods to the order of a named person. The words in subsection 1(4)(a), “goods which include those goods” cover the case where the goods to which the delivery order relates form a part of other goods.
(5) The Secretary of State may be regulations make provision for the application of this Act to cases where a telecommunication system or any other information technology is used for effecting transactions corresponding to –
(a) the issue of a document to which this Act applies;
(b) the indorsement, delivery or other transfer of such a document; or
(c) the doing of anything else in relation to such a document.
(6) Regulations under subsection (5) above may –
(a) make such modifications of the following provisions of this Act as the Secretary of State considers appropriate in connection with the application of this Act to any case mentioned in that subsection; and
(b) contain supplemental, incidental, consequential and transitional provision;
and the power to make regulations under that subsection shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.
2. – (1) Subject to the following provisions of this section, a person who becomes –
(a) the lawful holder of a bill of lading;
(b) the person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,
shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.
(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill –
(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill; or
(b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements.
(3) The rights vested in any person by virtue of the operation of subsection (1) above in relation to a ship’s delivery order –
(a) shall be so vested subject to the terms of the order; and
(b) where the goods to which the order relates form a part only of the goods to which the contract of carriage relates, shall be confined to rights in respect of the goods to which the order relates.
Subsections (5)-(6)
These subsections implement recommendation (8), enabling the Secretary of State to make provision by regulations for information given by means other than in writing to be of equivalent force and effect as if it had been given in writing.
Clause 2
This clause implements recommendations (1)-(3) and (6)-(7), relating to rights of suit under certain shipping document.
Subsection (1)
This subsection allows (a) the lawful holder of a bill of lading; (b) the consignee identified in a sea waybill; (c) the person entitled to delivery in accordance with an undertaking given in a ship’s delivery order, to assert contractual rights of suit against the carrier of the goods. As for the words in brackets in subsection 2(1)(b), the shipper will have rights of suit by virtue of being a party to the contract of carriage: see also subsection 2(5).
Subsection (2)
This subsection, the reason for which is explained in paragraphs 2.43-2.44 of the report, allows the lawful holder of a bill of lading which is no longer a transferable document of title to sue the carrier providing that he became the holder of the bill in pursuance of arrangements made before the bill ceased to be a transferable document of title. The words “possession of the bill no longer gives a right … to possession of the goods” cover, inter alia, the case where delivery of the goods has been made and also the case where the goods are destroyed.
Subsection (2)(b) makes it clear that where a person becomes the holder of a bill of lading as a result of the rejection by another of goods or documents delivered under arrangements made before the bill of lading ceased to be a transferable document of title, that person will be able to assert contractual rights against the carrier. By way of example, S and B make a contract of sale in March for delivery in June. After delivery of the goods, the bill ceases to be a transferable document of title. The goods are rejected upon arrival, and the documents make their way back up the chain until they reach S in October. Although by October the bill of lading has ceased to grant constructive possession of the goods, S is able to sue the carrier because he became the holder of the bill as a result of the rejection of goods delivered under an arrangement (the March sale) made before the bill ceased to be a transferable document of title.
Subsection (3)
This subsection makes it clear (a) that the person entitled to sue under a ship’s delivery order does so on the terms of the undertaking contained in the order; and (b) that any such rights are confined to the goods covered by the order. For example, a bill of lading covers 10,000 tonnes of grain. The ship takes in the bill and issues 10 delivery orders covering 1,000 tonnes each, so as to enable ten buyers to take delivery. The rights of each holder of the delivery order are confined to 1,000 tonnes and not the whole 10,000 tonnes. It will be seen that subsection 5(4) makes it clear that rights of suit can exist in respect of goods to which a document relates even though those goods form part of a larger bulk.
(4) Where, in the case of any document to which this Act applies –
(a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but
(b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person,
the other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised.
(5) Where rights are transferred by virtue of the operation of subsection (1) above in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives –
(a) where that document is a bill of lading, from a person’s having been an original party to the contract of carriage; or
(b) in the case of any document to which this Act applies, from the previous operation of that subsection in relation to that document;
but the operation of that subsection shall be without prejudice to any rights which derive from a person’s having been an original party to the contract contained in, or evidenced by, a sea waybill and, in relation to a ship’s delivery order, shall be without prejudice to any rights deriving otherwise than from the previous operation of that subsection in relation to that order.
3. – (1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection –
(a) takes or demands delivery from the carrier of any of the goods to which the document relates;
(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or
(c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,
that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.
(2) Where a goods to which a ship’s delivery order relates form a part only of the goods to which the contract of carriage relates, the liabilities to which any person is subject by virtue of the operation of this section in relation to that order shall exclude liabilities in respect of any goods to which the order does not relate.
Subsection (4)
This subsection implements the policy discussed at para 2.27 of the report, that where the person who has rights of suit under our proposals has not suffered any or all of the loss in question, he can exercise the rights of suit for the benefit of the person who has suffered the loss.
Subsection (5)
This subsection makes provision for the entitlements to sue of original shippers and those intermediately entitled under our proposals. It provides as follows:
(i) The shipper under a bill of lading ceases to have contractual rights once someone else becomes the lawful holder: para (a). For the position of the shipper who is a charterer, see para 2.52 of the report.
(ii) The intermediate holder of a bill of lading ceases to have contractual rights once someone else becomes the lawful holder; para (b).
(iii) The rights of a sea waybill consignee are without prejudice to any rights which the shipper may have under the waybill contract: tailpiece.
(iv) Those intermediately entitled to delivery under the terms of a sea waybill cease to be entitled to rights of suit once someone else becomes entitled to delivery: para (b). Usually, the person entitled to sue will be the consignee named in the sea waybill. However, where the consignee’s name is changed before delivery, he will cease to be entitled to sue under the Act and, instead, the new consignee will have rights of suit.
(v) Those intermediately entitled to delivery under a ship’s delivery order cease to be entitled to rights of suit when someone else subsequently becomes entitled to delivery: para (b).
(vi) In the case of a ship’s delivery order, the rights of the person entitled under the delivery order are in addition to any rights possessed by any person under the contract of carriage in relation to which the order is issued: tailpiece. Since sea carriers do not usually issue delivery orders except in exchange for a bill of lading, they will not in practice have to face actions from both the bill of lading holder and holders of delivery orders.
Clause 3
This clause implements recommendation (4), relating to the liabilities of those asserting contractual rights.
Subsection (1)
This subsection provides that where any person entitled to sue under our recommendations takes or demands delivery or otherwise makes a claim against the carrier, he becomes subject to any contractual liabilities as if he had been a party to the contract of carriage. Likewise, where a person takes or demands delivery before he has any contractual rights (as where he takes delivery pursuant to a letter of indemnity), he becomes liable under the statute when he subsequently has the rights conferred on him.
Subsection (2)
This subsection makes it clear that the liabilities of anybody entitled under a ship’s delivery order are confined to the goods in respect of which the order relates. Where a bill of lading relates to 10,000 tonnes, and 10 delivery orders each in respect of 1,000 tonnes are issued by the ship, the liabilities of each delivery order holder do not extend to the whole 10,000 tonnes but only to the amount covered by the delivery order.
(3) This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract.
4. A bill of lading which –
(a) represents goods to have been shipped on board a vessel or to have been received for shipment on board a vessel; and
(b) has been signed by the master of the vessel or by a person who was not the master but had the express, implied or apparent authority of the carrier to sign bills of lading,
shall, in favour of a person who has become the lawful holder of the bill, be conclusive evidence against the carrier of the shipment of the goods or, as the case may be, of their receipt for shipment.
5. – (1) In this Act –
“bill of lading”, “sea waybill” and “ship’s delivery order” shall be construed in accordance with section 1 above;
“the contract of carriage” –
(a) in relation to a bill of lading or sea waybill, means the contract contained in or evidenced by that bill or waybill; and
(b) in relation to a ship’s delivery order, means the contract under or for the purposes of which the undertaking contained in the order is given;
“holder”, in relation to a bill of lading, shall be construed in accordance with subsection (2) below;
“information technology” includes any computer or other technology by means of which information or other matter may be recorded or communicated without being reduced to documentary form; and
“telecommunication system” has the same meaning as in the Telecommunications Act 1984.
(2) References in this Act to the holder of a bill of lading are references to any of the following persons, that is to say –
(a) a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;
(b) a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill;
(c) a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates; and a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith.
Subsection (3)
This subsection provides that nothing in our reforms affects any of the shipper’s (or carrier’s) liabilities as an original party to the contract of carriage.
Clause 4
This clause implements recommendation (5), disposing of the rule in Grant v Norway (1851) 10 C.B. 665. It provides that a bill of lading, representing goods to have been shipped or received for shipment and in the hands of the lawful holder [ie acting in good faith: see subsection 5(2)], is conclusive evidence against the carrier of such shipment or receipt.
Clause 5
This is the interpretation clause.
Subsection (1)
This subsection contains several definitions. The definitions of “information technology” and “telecommunication system” relate to the E.D.I. provisions in subsection 1(5).
Subsection (2)
The lawful holder of a bill of lading is either the consignee named in the bill or any indorsee (including the holder of a “bearer” bill) who is in possession of the bill in good faith, including those cases where the person becomes a lawful holder after the bill of lading has ceased to be a transferable document of title: though see, of course, subsection 2(2).
(3) References in this Act to a person’s being identified in a document include references to his being identified by a description which allows for the identity of the person in question to be varied, in accordance with the terms of the document, after its issue, and the reference in section 1(3)(b) of this Act to a document’s identifying a person shall be construed accordingly.
(4) Without prejudice to sections 2(2) and 4 above, nothing in this Act shall preclude its operation in relation to a case where the goods to which a document relates –
(a) cease to exist after the issue of the document; or
(b) cannot be identified (whether because they are mixed with other goods or for any other reason);
and references in this Act to the goods to which a document relates shall be construed accordingly.
(5) The preceding provisions of this Act shall have effect without prejudice to the application, in relation to any case, of the rules (the Hague-Visby Rules) which for the time being have the force of law by virtue of section 1 of the Carriage of Goods by Sea Act 1971.
6. – (1) This Act may be cited as the Carriage of Goods by Sea Act 1991.
(2) The Bills of Lading Act 1855 is hereby repealed.
(3) This Act shall come into force at the end of the period of two months beginning with the day on which it is passed; but nothing in this Act shall have effect in relation to any document issued before the coming into force of this Act.
(4) This Act shall not extend to Northern Ireland.
Subsection (3)
This subsection expands on the word “identified” in subsection 1(4)(b) [and “identifies” in subsection 1(3)(b)]. It makes clear that, in the case of a sea waybill, the person entitled to sue includes the person who (though not initially the named consignee) subsequently becomes the person entitled to delivery, as where the shipper varies his instructions so that the carrier is required to deliver to someone other than the original consignee. Similarly, in the case of a ship’s delivery order, it covers the undertaking made to “X or order”.
Subsection (4)
This subsection makes it clear that rights of suit in relation to any document can exist in respect of goods which are not ascertained or have ceased to exist, as when goods form part of a larger bulk or where goods are carried on a vessel which sinks.
Subsection (5)
This subsection makes it clear that nothing in the Act affects the operation of the Hague-Visby Rules in cases where they apply.
Clause 6
This clause contains the short title, commencement and extent provisions and repeals the Bills of Lading Act 1855.
Notes / Cases
Note 1 S. en S. 1985 Nr 91. [Back]
Note 2 Karlshamns Olje Fabriker v Eastport Navigation Corp. (The Elafi) [1981] 2 Lloyd’s Rep 679; Owners of cargo lately laden on board The Aramis v Aramis Maritime Corp. (The Aramis)[1989] 1 Lloyd’s Rep 213. See also Leigh & Sillivan Ltd v Aliakmon Shipping Ltd. (The Aliakmon) [1986] AC 785; Enichem Anic SpA v Ampelos Shipping Co Ltd (The Delfini) [1990] 1 Lloyd’s Rep 252. [Back]
Note 3 Working Paper No 112. [Back]
Note 4 Discussion Paper No 83. [Back]
Note 5 Working Paper No 112, para 4.16. [Back]
Note 6 Ibid, para 4.21. [Back]
Note 7 Discussion Paper No 83, paras 3.12-3.15. [Back]
Note 8 A broader approach was adopted in the Scottish Discussion Paper. [Back]
Note 9 [1990] 1 Lloyd’s Rep 252. [Back]
Note 10 See Reynolds, “Reform of the Bills of Lading Act”, (1990) 106 LQR 1; Treitel, “Passing of property under cif contracts and the Bills of Lading Act 1855”, [1990] LMCLQ 1,3. [Back]
Note 11 See Carver, “On Some Defects in the Bills of Lading Act, 1855”, (1890) 6 LQR 289, 292: “Perhaps the time has arrived when fresh legislation on the subject may be attempted with advantage.” [Back]
Note 12 See the Note of Partial Dissent by Dr Eric Clive, at the end of this report. In the remainder of this report, references to the Commissioners should be read subject to this dissent. [Back]
Note 13 In this report, we adopt the modern spelling “indorsee” and “indorsement”, rather than “endorsee” and “endorsement”. [Back]
Note 14 See Part V below. [Back]
Note 15 (1884) 10 App Cas 74. [Back]
Note 16 Brandt v Liverpool, Brazil & River Plate Navigation Co Ltd [1924] 1 KB 575. [Back]
Note 17 Generally, in cif c & f and fob contracts, risk passes on, or as from, shipment regardless of when property passes: seeBenjamin’s Sale of Goods (3rd ed, 1987), [hereafter “Benjamin”] paras 1694 & 1869. [Back]
Note 18 [1989] 1 Lloyd’s Rep 213. [Back]
Note 19 [1986] AC 785. [Back]
Note 20 [1990] 1 Lloyd’s Rep 252. [Back]
Note 21 See also Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) (No 2) [1990] 2 Lloyd’s Rep 395, esp at p401. In this case, neither cargo owner was the named consignee. Property passed to one of them on shipment and to another during the voyage. The bill of lading was only indorsed to one of them, and this took place after completion of discharge. Hence, in neither case did property pass upon or by reason of the indorsement of the bill of lading. [Back]
Note 22 Lord Bramwell in Sewell v Burdick (1884) 10 App Cas 74, 105, pointed out other defects in the preamble and section 1. The latter refers to the “contract contained in the bill of lading” whereas usually the bill of lading merely evidences the contract. Also, the section reads as though property passes by virtue of the indorsement, whereas in fact it passes by virtue of the contract in pursuance of which the indorsement is made. [Back]
Note 23 Paras 3.9-3.20. [Back]
Note 24 Scrutton on Charterparties (19th ed 1984), [hereafter “Scrutton”] p27. [Back]
Note 25 Carver, Carriage by Sea (13th ed 1982), [hereafter “Carver”] p98; The San Nicholas [1976] 1 Lloyd’s Rep 8: The Sevonia Team [1983] 2 Lloyd’s Rep 640. [Back]
Note 26 [1990] 1 Lloyd’s Rep 252. [Back]
Note 27 Ibid, p261 per Purchas L J; p274 per Mustill L J; p275 per Woolf L J. [Back]
Note 28 Ibid, p261. [Back]
Note 29 [1989] 1 Lloyd’s Rep 213. [Back]
Note 30 In modern international sales transactions, frequent resort is made to letters of indemnity in lieu of a bill of lading. Delivery will be made by the carrier against a letter of indemnity given by the seller to cover the carrier against any loss caused by delivering against a document other than a bill of lading, each seller in the chain giving a similar indemnity. Frequently the shipowner will demand that the letter of indemnity be given by the charterer, for the reason that the shipowner has already accepted his financial standing and is in a contractual relationship with him. Similarly, each seller in the chair will give an indemnity to his buyer (or bank) to ensure that payment will be made on the due date under the contract even though the shipping documents are not to hand. When the original seller acquires the bill of lading, he will pass it down the chain. As each person receives the bill, his letter of indemnity becomes void. When the final buyer delivers it to the carrier, he extinguishes his own indemnity to the carrier. See Goode, Proprietary Rights and Insolvency in Sales Transactions (2nd ed 1989), pp73-74; Wiseman, “Transaction Chains in North Sea Oil Cargoes”, (1984) 2 JENRL 134. [Back]
Note 31 [1988] 2 Lloyd’s Rep 599, 609. See para 2.42 below. [Back]
Note 32 [1990] 1 Lloyd’s Rep 252, 272. [Back]
Note 33 At p276. [Back]
Note 34 At p266. [Back]
Note 35 Mustill L.J., at p270, said that “endorsement” in section 1 of the Bills of Lading Act 1855 meant a written endorsement coupled with transfer of the document, as in the Bills of Exchange Act 1882. [Back]
Note 36 In long chains of sales, the problems are further exacerbated where payment is made by way of documentary letters of credit. This involves an issuing banker, at the request of the buyer, promising to pay the price of the goods to the seller against the tender of the relevant documents. Usually the issuing bank utilises the services of a correspondent bank in the seller’s own country to advise the seller and if necessary confirm the credit. Thus, once the seller has received the documents they go through the correspondent bank, the issuing bank and thence to the buyer. Add to this resales and it becomes obvious why the bill of lading cannot move down the chain in the, often, short time that the cargo is afloat. SeeBenjamin, ch. 23. [Back]
Note 37 The letter of indemnity is required by the buyer from his seller in case the bill is acquired by a third party, because under section 24 of the Sale of Goods Act 1979 a third party who acquires a bill of lading from a seller can acquire a better title to the goods than the buyer who has paid for the goods. [Back]
Note 38 In Cremer v General Carriers (The Dona Mari) [1974] 1 W.L.R.341, it was held that an implied contract could arise by the buyer’s presentation of a ship’s delivery order in which the terms of the bill of lading were incorporated by reference. [Back]
Note 39 [1924] 1K.B. 575. [Back]
Note 40 Commonly referred to as a Brandt v Liverpool contract. [Back]
Note 41 [1983] 1 Lloyd’s Rep 203, 207. [Back]
Note 42 [1986] AC 785. [Back]
Note 43 [1989] 1 Lloyd’s Rep 213. See Tritel, “Bills of lading and implied contracts”, [1989] L.M.C.L.Q. 162. [Back]
Note 44 As against the shipper, the shipowner had the duty to deliver the goods to the holder of the bill of lading. The holder of the bill of lading had a similar right to receive the goods although he could not enforce his right directly against the shipowner: his lack of title to the goods (by virtue of s.16 of the Sale of Goods Act 1979) meant that the rights of suit under s.1 of the Bills of Lading Act 1855 were not available to him. [Back]
Note 45 [1989] 1 Lloyd’s Rep 213, 224 per Bingham L.J. [Back]
Note 46 In The Aramis [1989] 1 Lloyd’s Rep 213, 230, Stuart-Smith L.J. said that, “in the case of bill of lading 5, where there was no delivery, there is no basis, in my judgment, for implying a contract”. [Back]
Note 47 Para 3.17. [Back]
Note 48 Cf Compania Portorafti Commerciale S.A. v Ultramar Panama Inc. (The Captain Gregos) (No 2) [1990] 2 Lloyd’s Rep 395, where a Brandt v Liverpool contract was implied, in order to give business reality to the transaction between the shipowner and the person taking delivery, even though the latter neither paid (nor undertook to pay) the freight nor presented (nor undertook to present) a bill of lading. See also Mitsui & Co LtdCo Ltd v Novorossiysk Shipping Co. (The Gudermes), Unreported, 21st December 1990 (Hirst J.). [Back]
Note 49 Such assignment cannot, apparently, be compelled: The Albazero [1977] A.C. 774, 845-846 per Lord Diplock; cf Goode, “Ownership and Obligation in Commercial Transactions”, (1987) 103 L.Q.R. 433, 456-457. [Back]
Note 50 For instance, in Russian gasoil contracts the buyer is unlikely to obtain co-operation from his seller, since both the seller and the carrier are official Soviet agencies: Sas, “Legal Aspects of Risk Management and Forward Oil Trading: The Forward Oil Markets and their Contracts”, (1989) 7 J.E.N.R.L. 1, 15. [Back]
Note 51 See para 3.20. [Back]
Note 52 The Aliakmon [1986] AC 785, 809. In Obestain Inc. v National Mineral Development Corp. (The Sanix Ace) [1987] 1 Lloyd’s Rep 465, 468, Hobhouse J. said that the only qualification was that the owner’s claim may be defeated if his title was a bare propietary one and did not include any right to possession of the goods. As to the meaning of possessory title, in Margarine Union G.m.b.H. v Cambay Prince S.S. Co. (The Wear Breeze) [1969] 1 Q.B. 219, 250, Roskill J. (in a judgment approved inThe Aliakmon) referred to the person “entitled to possession” rather than the more onerous “person in possession”. See also Nacap Ltd v Moffat 1987 S.L.T. 221;Transcontainer Express Ltd v Custodian Security Ltd. [1988] 1 Lloyd’s Rep 128, 138. [Back]
Note 53 The Nea Tyhi [1982] 1 Lloyd’s Rep 606, 612-613. [Back]
Note 54 See Compania Portorafti Commerciale S.A. v Ultramar Panama Inc. (The Captain Gregos) [1990] 1 Lloyd’s Rep 310, 318; Berlingieri, “The Hague-Visby Rules and Actions in Tort”, (1991) 107 L.Q.R. 18. [Back]
Note 55 [1985] Q.B. 350, 399. [Back]
Note 56 [1986] AC 785, 819-820. [Back]
Note 57 About 50% of litigants in the Commercial Court are foreign and almost 30% of cases have no English litigant. SeePractice Statement: Commercial Court Procedures, 28 July 1989. [Back]
Note 58 See para 4.16 of Working Paper No 112. [Back]
Note 59 Ibid, para 4.21; para 3.14 of Discussion Paper No 83. [Back]
Note 60 See Part III below. [Back]
Note 61 [1990] 1 Lloyd’s Rep 252. [Back]
Note 62 Under the Carriage by Air Act 1961, the Carriage of Goods by Road Act 1965 and the International Transport Conventions Act 1983, the consignee can sue regardless of whether he had property in the goods. [Back]
Note 63 Sewell v Burdick (1884) 10 App. Cas. 74. [Back]
Note 64 The Sanix Ace [1987] 1 Lloyd’s Rep 465 recognises that the owner of goods may recover substantial damages for their loss or damage, even though the ultimate risk of economic loss falls on a subsequent buyer. [Back]
Note 65 At sections 7, 20, 32(3) and 33. See, generally, Sealy, “Risk in the Law of Sale”, [1972 B] C.L.J.225. [Back]
Note 66 See Debattista, Sale of Goods Carried by Sea (1990), pp 75-76, 89-90; Atiyah, The Sale of Goods (8th ed, 1990), p 325. In The Aliakmon [1985] Q.B. 350, 365, Sir John Donaldson M.R. said that, in the context of the duty of a c.i.f. buyer to pay for the goods irrespective of loss or damage to them, although it was usual to speak of the goods being at the buyer’s risk, the true analysis was that he had contracted to buy and pay for the goods in whatever state they might be at the end of the voyage. [Back]
Note 67 For instance, there is the controversial question whether in a sale of unascertained goods on c.i.f. terms the seller is entitled to appropriate goods which he knows are lost or damaged: seeBenjamin, paras 1678, 1697; Debattista, op. cit., pp 100-105. [Back]
Note 68 SeeBenjamin, paras 1517-1518 and para 1701. [Back]
Note 69 Section 31 (49 USCA, s.111). [Back]
Note 70 Art. 49 of Decree No 66-1078 of December 31st, 1966. [Back]
Note 71 See clause 2(1) of the Bill. [Back]
Note 72 See clause 5(2) of the Bill. [Back]
Note 73 See Bowstead on Agency (15th ed, 1985), ch.8. [Back]
Note 74 Ibid, p431. [Back]
Note 75 [1977] A.C. 774. [Back]
Note 76 See Banque de l’Indochine et de Suez v J.H. Rayner (Mincing Lane) Ltd. [1983] Q.B. 711. [Back]
Note 77 See also The Kelo [1985] 2 Lloyd’s Rep 85, 89, where Staughton J. recognised the commercial utility of an agent being able to sue: “[A] had a genuine commercial interest in the discharge and delivery of these goods. They apparently acted habitually as agents for [P], taking delivery of goods; at any rate they were named as the discharging port agents for the charterers in the charter-party. It made good sense commercially that, as part of their duties, they should deal with claims against the ship and if they wished to do so, deal with those claims in their own name.” [Back]
Note 78 Paul v National S.S. Co. (1937) 43 Com. Cas 68 is authority for the proposition that a bill of lading holder suing a shipowner may recover damages in full despite an earlier recovery against an intermediate seller. Goddard J. said that if the plaintiffs had a right to sue the shipowner, it was unaffected by the fact that by reason of some other transaction there was a duty to account. See also The Sanix Ace [1987] 1 Lloyd’s Rep 465. [Back]
Note 79 In The Kelo [1985] 2 Lloyd’s Rep 85, an agent to whom contractual rights had been assigned was able to sue and recover substantial damages although it was recognised that he would undoubtedly have to have accounted to his principal. Likewise, a plaintiff with a limited interest in goods can sue in conversion and recover in full, if necessary holding the proceeds on account. In The Winkfield [1902] P.42, a bailee suing in conversion was entitled to recover in full, though undoubtedly having to account to the bailors. In The Jag Shakti [1986] AC 337(P.C.), a pledgee of a bill of lading was entitled to recover in full in a conversion action, it being irrelevant that there was a duty to account. [Back]
Note 80 In The Albazero [1977] A.C. 774, the plaintiff time charterers sold a cargo of crude oil to an associated company, indorsing the bill of lading and putting it in the post. On the following day the vessel sank, the indorsee subsequently paying for the cargo. Since a time bar prevented the indorsee from suing the carrier, the charterers sought to recover the loss themselves from the defendant shipowners. The House of Lords held that the plaintiffs could not recover because, although there had been a breach of the charterparty, they had sustained no loss, property and risk having passed to the indorsee before the loss. To this rule, there are exceptions including cases where the claim is made by the owner of the goods: The Sanix Ace [1987] 1 Lloyd’s Rep 465. [Back]
Note 81 [1977] A.C. 774. [Back]
Note 82 See also para 2.45 below. [Back]
Note 83 [1987] 1 Lloyd’s Rep 465. [Back]
Note 84 R.S.C. ord. 24, r.3. [Back]
Note 85 Willis & co v Baddeley [1892] 2 Q.B. 324. [Back]
Note 86 Sewell v Burdick (1884) 10 App. Cas. 74. [Back]
Note 87 Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd [1924] 1 K.B. 575; The Aramis [1989] 1 Lloyd’s Rep 213,224. [Back]
Note 88 See Part III below. [Back]
Note 89 See clause 2(5) of the Bill. Cf. Dr Clive’s Note of Partial Dissent below. [Back]
Note 90 See paras 2.40-2.41 below. [Back]
Note 91 See Part V below. [Back]
Note 92 The shipper may contract with the shipowner on terms that the shipper loses his rights once the consignee takes delivery. In this case, the waybill shipper would be in the same position as a bill of lading shipper. We understand that shipowners can achieve this result at present under the C.M.I. Rules on Sea Waybills. [Back]
Note 93 (1884) 10 App. Cas. 74,. 84. [Back]
Note 94 (1866) L.R. 1 C.P. 248. [Back]
Note 95 [1962] 1 W.L.R. 40. [Back]
Note 96 Dunlop v Lambert (1839) 6 Cl. & F. 600. [Back]
Note 97 [1977] A.C. 774. [Back]
Note 98 Ibid, p849; seeBenjamin, para 1460, n.57. [Back]
Note 99 See also The Ciudad de Pasto [1988] 1 W.L.R. 1145, 1148 per Staughton L.J. For the position of bills of lading issued to charterers, see paras 2.51 ff. below. [Back]
Note 100 See para 3.23 below. [Back]
Note 101 SeeBenjamin, para 1460. In Fox v Nott (1861) 6 H. & N. 630, 636; 158 E.R. 260, 263, Pollock C.B. said “The statute creates a new liability, but it does not exonerate the person who has entered into an express contract”. [Back]
Note 102 See Dr Clive’s Note of Partial Dissent, below. [Back]
Note 103 For ex ship and arrival contracts, seeBenjamin, para 1934. [Back]
Note 104 Shipping conferences (ie groups of shipowners) frequently give preferential freight rates to those shippers who do not use ships belonging to another conference: see Schmitthoff’s Export Trade (9th ed., 1990) pp 547-548. [Back]
Note 105 See paras 2.51-2.55 below. [Back]
Note 106 See paragraphs 2.21-2.22 above and on United States law, Farbwerke Hoescht v “Don Nichy” 589 F2d 795 (1979); Gradman & Holler v Continental Liners 504 F. Supp 785 (1980); on French law, The Mercandia Transporter II, Cour de Cassatyion, 25 June 1985 [1985] DMF 659. [Back]
Note 107 Smurthwaite v Wilkins (1862) 11 C.B. (N.S.) 842 is authority for the proposition that if a person passes on a bill of lading by indorsement to another who obtains the property, he passes on all the rights and liabilities which the bill of lading carries with it. In that case, an intermediate indorsee was not liable for freight, although it follows that he would also have been unable to sue for loss or damage to the goods. [Back]
Note 108 SeeBenjamin, para 1703; Lightburn & Nienaber, “Out-turn clauses in c.i.f. contracts in the oil trade”, [1987] L.M.C.L.Q. 177. [Back]
Note 109 See paras 2.38-2.39 above. [Back]
Note 110 The Kelo [1985] 2 Lloyd’s Rep 85. [Back]
Note 111 The Delfini [1988] 2 Lloyd’s Rep 599, 609; Short v Simpson (1866) L.R. 1C.P. 248;Scrutton, Art. 93. [Back]
Note 112 Debattista, op cit pp. 40-41. [Back]
Note 113 See The Kelo [1985] 2 Lloyd’s Rep 85. [Back]
Note 114 See Trendtex Trading Corp v Credit Suisse [1982] AC 679. [Back]
Note 115 Para 4.18. [Back]
Note 116 See The Sanix Ace [1987] 1 Lloyd’s Rep 465, 468. [Back]
Note 117 The Sanix Ace [1987] 1 Lloyd’s Rep 465 is an example of a charterer who also owned the goods being able to recover substantial damages from the shipowner, despite having made on-sales which meant that he had in fact suffered no economic loss. [Back]
Note 118 See also para 5.24 below. [Back]
Note 119 See generallyScrutton, Arts, 179-182; Debattista, op cit pp 211-228; Ramberg, “The Multimodal Transport Document”, in Schmitthoff & Goode (ed), International Carriage of Goods: Some Legal Problems and Possible Solutions (1988), p1. Bills of lading relating to goods packed in containers and carried by multimodal transport have a variety of names, including “container bills of lading”, “combined transport documents”, “multimodal transport documents”, etc. [Back]
Note 120 These problems are the subject of the 1980 United Nations Convention on Multimodal Transport: see Diamond, “Liability of the Carrier in Multimodal Transport”, in Schmitthoff & Goode (ed), op cit p 35. [Back]
Note 121 Richardson, “Containers, consortia and combined transport”, (1986) Journal of the Society of Fellows of the Chartered Insurance Institute, Vol 1, pt 1, p 50. [Back]
Note 122 This is because cargo to which such documents relate is frequently collected by carriers or their agents at inland container depots, rather than at the ship’s rail: Debattista, op cit, p 212, n 106. [Back]
Note 123 In The Marlborough Hill [1921] 1 AC 444, the Privy Council accepted that “received for shipment” bills of lading were documents of title (although strictly the only issue in that case was whether a “received for shipment” bill was “any bill of lading” within the Colonial Courts of Admiralty Act 1890), and in Ishag v Allied Bank International [1981] 1 Lloyd’s Rep 92, 98, and The Lycaon [1983] 2 Lloyd’s Rep 548, 550, Lloyd J accepted that such bills were documents of title within the custom proved inThe Marlborough Hill. Nevertheless, they were not within the custom provided in Lickbarrow v Mason (1794) 5 TR 683, and in Diamond Alkali Export Corp v Bourgeois [1921] 3 KB 443, McCardie J refused to accept that a “received for shipment” bill fell within the 1855 Act. [Back]
Note 124 Negus, “The Evolution of Bills of Lading”, (1921) 37 LQR 304. [Back]
Note 125 Debattista, op cit, pp 223-224. [Back]
Note 126 Scrutton, p 383. [Back]
Note 127 Bateson, “Through Bills of Lading” (1889) 5 LQR 424. [Back]
Note 128 Ibid, p 425; Carver, “On some Defects in the Bills of Lading Act, 1855” (1890) 6 LQR 289, 294. [Back]
Note 129 At para 1994. [Back]
Note 130 Art 181. [Back]
Note 131 Ibid, Art 179. [Back]
Note 132 See Schmitthoff’s Export Trade (9th ed, 1990), pp 579-582. [Back]
Note 133 Benjamin, para 1446. [Back]
Note 134 On sea waybills generally, see para 5.6 below. [Back]
Note 135 See Part IV below. [Back]
Note 136 Section 1(6) of the Carriage of Goods by Sea Act 1971 distinguishes bills of lading and non-negotiable (meaning non-transferable) receipts into which latter category sea waybills or straight bills of lading are capable of falling: see The European Enterprise [1989] 2 Lloyd’s Rep 185. Section 1(6) expressly dis-applies the second sentence of Article III.4 of the Hague-Visby Rules [making the bill of lading in the hands of a third party in good faith conclusive proof of receipt by the carrier] to non-negotiable documents. Clause 4 of our Bill corresponds to Article III.4. [Back]
Note 137 See para 4.8ff below. [Back]
Note 138 See generallyScrutton, Arts 31-33. [Back]
Note 139 Scrutton, Art 32. [Back]
Note 140 [1977] AC 774. [Back]
Note 141 The Dunelmia [1970] 1QB 289;Scrutton, Art 32, Benjamin, para 1444. [Back]
Note 142 Cf Debattista, op cit pp 165-169. [Back]
Note 143 [1970] 1 QB 289; see, in particular, Goff QC, arguendo, at p 301. [Back]
Note 144 As in The Dunelmia [1970] 1 QB 289. [Back]
Note 145 Scrutton, Art 33. [Back]
Note 146 (1936) 41 Com Cas 350, 356. [Back]
Note 147 Art 33. [Back]
Note 148 Carver, p 68. [Back]
Note 149 Ministry of Food v Lamport & Holt Line [1952] 2 Lloyd’s Rep 371, 382. [Back]
Note 150 At p 28. [Back]
Note 151 See Part II above. [Back]
Note 152 (1884) 10 App Cas 74. [Back]
Note 153 See also Treitel, “Passing of property under cif contracts and the Bills of Lading Act 1855”, [1990] LMCLQ 1, 4. [Back]
Note 154 In Sanders v Vanzeller (1843) 4 QB 260, 295, Tindal C.J. queried the justice of requiring the indorsee to pay freight to the shipowner when the charterer had expressly contracted to do this. [Back]
Note 155 See The Aramis [1989] 1 Lloyd’s Rep 213, 224 per Bingham L J. [Back]
Note 156 See Reynolds, “The Significance of Tort in Claims in Respect of Carriage by Sea”, [1986] LMCLQ 97, 103. [Back]
Note 157 See Treitel, “Passing of property under cif contracts and the Bills of Lading Act 1855”, [1990] LMCLQ 1,4. [Back]
Note 158 “I can see that it would be tidy to have a doctrine which gave the bill of lading holder the right (sic) under the bill of lading contract. But fairness would decree that he also had the liabilities, and as the fact of Sewell v Burdick demonstrate, the justice of this is in many cases far from obvious.” Per Mustill L J in The Delfini [1990] 1 Lloyd’s Rep 252, 274. [Back]
Note 159 For instance, Sanders v Vanzeller (1843) 4QB 260; Young v Moeller (1855) 5 E & B 755, discussed in The Aramis [1989] 1 Lloyd’s Rep 213, 219. [Back]
Note 160 [1995] AC 40, 44. [Back]
Note 161 [1989] 1 Lloyd’s Rep 213. [Back]
Note 162 See para 2.12. above. [Back]
Note 163 See the Carriage by Air Act 1961, the Carriage of Goods by Road Act 1965 and the International Transport Conventions Act 1983. [Back]
Note 164 See the Scottish Law Commission’s Discussion Paper No 83, paras 3.13-3.14. There is very little discussion either in the Conventions or the case law on the extent of the consignee’s liabilities. Under Article 6 of the CMR Convention, incorporated in the Carriage of Goods by Road Act 1965, the charges are only those relating to carriage, those which the sender undertakes to pay and cash on delivery charges. This would seem, by implication, to exclude such matters as liability for dangerous goods. See, generally, Clarke, International Carriage of Goods by Road: CMR (1982), CH 4; Chitty on Contracts (26th ed, 1989) Vol 2. Chs 4-5. [Back]
Note 165 Paras 3.14-3.15. [Back]
Note 166 See The Aramis [1989] 1 Lloyd’s Rep 213, 224, where Bingham L. J. said that an implied contract on the terms of the bill of lading could come into existence where the shipowner, in giving up his lien, makes or agrees to make delivery and the holder of the bill seeks or obtains delivery (emphasis added). [Back]
Note 167 See clause 3 of the Bill. [Back]
Note 168 Both Scrutton, p 28, and Carver, p 68, n 96, take the view that there is no such liability under the present Act. Carver argues that the shipper’s duty to give notice of the dangerous character of the cargo is a warranty outside the terms of the bill of lading which would not be transferred with it. In The Athanasia Comninos [1990] 1 Lloyd’s Rep 277 (decided in 1979), the question was left open, although Mustill J said that, as regards potential liability under a Brandt v Liverpool contract, the consignee only assumed contractual rights and liabilities concerning carriage, delivery and payment. He could see no ground for extending the implication to embrace a warranty by the consignee as to the fitness of the goods for carriage. [Back]
Note 169 The Athanasia Comninos [1990] 1 Lloyd’s Rep 277, 281 per Mustill J. [Back]
Note 170 SeeScrutton, p 320. [Back]
Note 171 Benjamin, para 1460. [Back]
Note 172 That is, damages for failure to furnish the ship with a full cargo. [Back]
Note 173 For instance, the cargo may have been heavier than described or of some size or shape that made its handling more expensive than if it had been as warranted. [Back]
Note 174 Fox v Nott (1861) 6 H & N 630, 158 ER 260; Summerskill on Laytime (3rd ed) para 10-05. See para 2.37 above. [Back]
Note 175 See clause 3(3) of the Bill. [Back]
Note 176 (1851) 10 CB 665. [Back]
Note 177 The case has been distinguished in respect of statements that goods were shipped under deck (The Nea Tyhi) [1982] 1 Lloyd’s Rep 606) as well as to falsely dated bills by duly appointed agents (The Saudi Crown [1986] 1 Lloyd’s Rep 261). [Back]
Note 178 Reynolds, “Warranty of Authority”, (1967) 88 LQR 189, 193; Bowstead on Agency (15th ed, 1985), p 309, n 28. [Back]
Note 179 [1912] AC 716. [Back]
Note 180 Nevertheless, in Kleinwort Sons & Co v Associated Automatic Machine Corporation Ltd (1934) 151 LT1, the House of Lords held itself bound by its earlier decision in George Whitechurch Ltd v Cavanagh [1902] AC 117 which expressly approved Grant v Norway. See also The Nea Tyhi [1982] 1 Lloyd’s Rep 606, 610-611, and Reynolds, “Warranty of Authority”, (1967) 88 LQR 189, 195. [Back]
Note 181 At p 115, n 72. [Back]
Note 182 V/O Rasnoimport v Guthrie & Co Ltd [1966] 1 Lloyd’s Rep 1, 18. However, at common law a shipowner is estopped, as against a transferee for value who acts to his detriment on a statement in a bill of lading that the goods were shipped in “apparent good order and condition”, from alleging that the goods were not in good condition when shipped: Silver v Ocean SS Co [1930] 1 KB 416. In Rasnoimport, at p 16, Mocatta J accepted that this common law estoppel also applied in respect of statements relating to the quantity of goods shipped. [Back]
Note 183 Reynolds, “Warranty of Authority”, (1967) 88 LQR 189, 192, n 11. [Back]
Note 184 Carver, “On Some Defects in the Bills of Lading Act, 1855”, (1890) 6 LQR 289, 303. [Back]
Note 185 [1966] 1 Lloyd’s Rep 1. [Back]
Note 186 Diamond, “The Hague-Visby Rules”, [1978] LMCLQ. [Back]
Note 187 Benjamin, para 1440. [Back]
Note 188 See Heskell v Continental Express Ltd [ 1950] 1 All ER 1033. [Back]
Note 189 Reynolds, “The Significance of Tort in Claims in Respect of Carriage by Sea”, [1986] LMCLQ 97, 110 n.67. Debattista, “The Bill of Lading as a Receipt – Missing Oil in unknown Quantities”, [1986] LMCLQ 468, points out other situations where Article III.4 may not provide a complete answer toGrant v Norway: in actions by shippers; between parties to a charterparty, and in cases where there is a “weight and quantity unknown” clause. [Back]
Note 190 See clause 4 of the Bill. Section 22 of the US Federal Bills of Lading Act 1916 (49 USCA, s.102), states that where the bill of lading has been issued by the carrier or by someone having his actual or apparent authority to receive goods and issue bills of lading, the carrier shall be liable to the holder of a bill of lading, who has relied on the fact of shipment being made on the date shown or the description of the goods named therein, for damages caused by the non-receipt by the carrier of all or part of the goods or their failure to correspond with the description in the bill. [Back]
Note 191 See n.1 of Dr Clive’s Note of Partial Dissent, below. [Back]
Note 192 See para 2.50 above. [Back]
Note 193 SeeBenjamin, at para 1446, which states that a straight consigned bill of lading is not a symbol of the goods because the carrier is bound to deliver the goods to the named consignee without production of the bill. See alsoScutton, Art 92, Henderson v Comptoir d’Escompte de Paris (1873) LR 5 PC 253, andSoproma v Marine & Animal By-Products Corp. [ 1966] 1 Lloyd’s Rep 367 provide authority for the proposition that a bill of lading made out simply to a named consignee without such words as “to order” is not a transferable document of title at common law, although cf Debattista, op cit, pp 193-194, for a criticism of this position. [Back]
Note 194 See The European Enterprise [1989] 2 Lloyd’s Rep 185. [Back]
Note 195 While it is true that section 1(6)(a), 1(7) and Article X refer merely to a bill of lading, we agree withScrutton,at p 415, that the phrase “bill of lading” must comprise a “similar document of title”, since otherwise Articles I(b), II and X cannot be reconciled. [Back]
Note 196 See Dr Clive’s Note of Partial Dissent, below. [Back]
Note 197 See Part II above. [Back]
Note 198 Benjamin, para 1433. [Back]
Note 199 Goode, Proprietary Rights and Insolvency in Sales Transactions (2nd ed, 1989), pp 9-10, 61-62. [Back]
Note 200 The special verdict of the jury in Lickbarrow v Mason (1794) 5 T.R. 683 recognised that by the custom of merchants a bill of lading expressing goods to have been shipped was transferable by indorsement and capable of passing property in the goods. See also the preamble to the Bills of Lading Act 1855. [Back]
Note 201 Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439, where the Privy Council was prepared in principle, though not on the facts of the case, to accept that a custom existed in trade between Singapore and Sarawak whereby mate’s receipts were treated as documents of title. [Back]
Note 202 Whereas it is only the transfer of a document of title at common law that operates as a transfer of constructive possession, nevertheless the transfer of a statutory document of title may give the transferee property in the goods even though the transferor was not the owner, as a statutory exception to the rulenemo dat quod non habet: ss 24-26 of the Sale of Goods Act 1979;Benjamin, para 1433; Debattista, op cit, pp 33-36. [Back]
Note 203 Cf s 1-201 of the Uniform Commercial Code which defines documents of title to include bills of lading, delivery orders, dock warrants and receipts and any other document which is regularly treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. [Back]
Note 204 “The bill of lading: do we really need it?”, [1989] L.M.C.L.Q 47 [Back]
Note 205 Waybills go under a variety of different names including “non-negotiable general sea waybill” and “non-negotiable sea waybill straight bill of lading”: see Debattista, “Sea Waybills and the Carriage of Goods by Sea Act 1971”, [1989] L.M.C.L.Q. 403, n.3. [Back]
Note 206 Debattista, op cit, pp 189-199. [Back]
Note 207 Other advantages of waybills include the following. Commercial documents such as the invoice and certificate of origin can be sent to the buyer earlier than otherwise, because there is no waiting period for the waybill to be produced, as there is with a bill of lading. There is no problem of the vessel arriving at the port of discharge ahead of the shipping documents. The ship can discharge at once, thus producing faster clearance of cargo, lower inventory costs and an overall faster shipping process. See generally, “The great bill of lading vs waybill debate”, Freight world, March 1989, p 25. [Back]
Note 208 Cf. Debattista, op cit, pp 199-204. [Back]
Note 209 Williams, “Waybills and Short Form Documents: A lawyer’s view”, [1979] L.M.C.L.Q 297, 310. [Back]
Note 210 (1839) 6 Cl & F 600. [Back]
Note 211 Whereas the principle in Dunlop v Lambert no longer applies where goods are carried under a bill of lading, its applicability to suits under waybills may be one of those “occasional cases in which the rule would provide a remedy where no other would be available”: see The Albazero [1977] A.C. 774, 847 per Lord Diplock. This view is supported by Williams, op cit, and by Tetley, Marine Cargo Claims (3rd ed, 1988), pp 969-970. [Back]
Note 212 Report on Maritime Fraud, UNCTAD/ST/SHIP/8, Part II: see Debattista, [1989] L.M.C.L.Q. 403, n.1. By way of contrast, bills of lading are usually issued in sets of three originals, a practice which arise in days of uncertain communications when it was felt that the greater number of originals, the greater the likelihood that at least one original would arrive at the port of discharge. The practice was criticised by Lord Blackburn in Glyn Mills Currie & Co v East & West India Dock Co. (1882) 7 App. Cas. 591, 605. [Back]
Note 213 For the argument that, unless waybills are brought within the 1855 Act, the consignee named in a waybill will be encouraged to sue in tort and thus avoid the terms of the carriage document, see Diamond, “Liability of the Carrier in Multimodal Transport”, in Goode & Schmitthoff (ed) International Carriage of Goods: Some Legal Problems and Possible Solutions (1988), 35, 53-54. [Back]
Note 214 See the Scottish Law Commission’s Discussion Paper No 83, para 3.13. [Back]
Note 215 See clause 2(1)(b) of the Bill. [Back]
Note 216 In practice, sea waybills incorporate the carrier’s standard conditions of carriage. For instance, P & O Containers’ standard form of non-negotiable waybill includes the following words: “Subject to the terms of the carrier’s standard bill of lading terms and conditions and tariff for the relevant trade, which are mutatis mutandis applicable to this waybill”. With the requisite drafting, it is possible to incorporate the Hague-Visby Rules into a waybill: The European Enterprise [1989] 2 Lloyd’s Rep 185. [Back]
Note 217 See, for instance, the issue raised at para 4.8 above. [Back]
Note 218 Glyn Mills Currie & Co v East & West India Dock Co (1881-82) 7 App Cas 591. Where the carrier has notice of other claims to the goods or knowledge of any other circumstances raising a reasonable suspicion that the claimant is not entitled to the goods, he must deliver at his peril to the rightful owner or must interplead:Scrutton, Art 149. [Back]
Note 219 See Williams, op cit p.308. [Back]
Note 220 The same result would follow if a bill of lading were issued and had not been transferred: seeBenjamin, para 1438; Mitchell v Ede (1840) 11 Ad. & El. 888; The Lycaon [1983] 2 Lloyd’s Rep 548, though not where the bill of lading had been transferred: Debattista, op cit, pp 32-33, 195-198. [Back]
Note 221 Diamond, op cit, p 56. [Back]
Note 222 The Carriage by Air Act 1961 (giving effect to the Warsaw Convention); the Carriage of Goods by Road Act 1965 (giving effect to the CMR Convention) and the International Transport Conventions Act 1983 (giving effect to the C.I.MI. Uniform Rules). See generallyBenjamin, paras 1970-1990; Chitty on Contracts (26th ed, 1989) Vol 2, chs 4 & 5. [Back]
Note 223 The UN Convention on the Carriage of Goods by Sea 1978 (the Hamburg Rules) does not deal with the problem of rights of disposal where non-negotiable documents are used. [Back]
Note 224 This will be superseded once the Carriage by Air and Road Act 1979 comes into force. [Back]
Note 225 Sections 38-46. [Back]
Note 226 Para 1975. See also paras 1982 and 1989. [Back]
Note 227 Para 1976. See also paras 1983 and 1990. [Back]
Note 228 See para 5.16 above. [Back]
Note 229 Article 7 of the UN Convention on International Multimodal Transport of Goods states that, in the case of non-negotiable multimodal transport documents, the multimodal transport operator shall be discharged from his obligation to deliver the goods if he makes delivery thereof to the consignee or to such other person as he may be duly instructed, as a rule, in writing. [Back]
Note 230 See Debattista, op cit p 197. [Back]
Note 231 See para 5.16 above. [Back]
Note 232 Under Article 6, these charges include charges relating to carriage (carriage charges, supplementary charges, customs duties and other charges incurred from the making of the contract to the time of delivery), charges which the sender undertakes to pay and cash on delivery charges. It has been argued that this excludes, by implication, other liabilities such as for dangerous goods: see Clarke, International Carriage of Goods by Road: CMR (1982) p 58, and para 3.14 above. [Back]
Note 233 See clause 2(5) of the Bill. [Back]
Note 234 See paras 2.34-2.39 above. [Back]
Note 235 See paras 3.23-3.24 above. [Back]
Note 236 See clause 3(3) of the Bill. [Back]
Note 237 [1990] 1 Q.B. 326. [Back]
Note 238 Section 7-102(d) of the Uniform Commercial Code defines a delivery order to mean a written order to deliver goods directed to a warehouseman, carrier or other person who in the ordinary course of business issues warehouse receipts or bills of lading. [Back]
Note 239 Sometimes referred to as a delivery warrant:Benjamin, para 1472. [Back]
Note 240 SeeCremer v General Carriers (The Dona Mari) [1974] 1 W.LR. 341; Waren Import Gesellschaft Krohn v Internationale Graanhandel Thegra N.V. [1975] 1 Lloyd’s Rep 146; Teare, “Ship’s Delivery Orders” [1976] LMCLQ 29. [Back]
Note 241 Waren Import Gesellschaft Krohn v Internationale Graanhandel Thegra N.V. [1975] 1 Lloyd’s Rep 146, 154. [Back]
Note 242 [1974] 1 WLR 341. [Back]
Note 243 See The Aramis [1989] 1 Lloyd’s Rep 213. [Back]
Note 244 See also Teare, op cit, p 30. [Back]
Note 245 S.I.A.T de del Ferro v Tradax [1978] 2 Lloyd’s Rep 470, 493, per Donaldson J. [Back]
Note 246 See clause 2(a)(c) of the Bill. [Back]
Note 247 SeeBenjamin, para 1477. Cf Colin & Shields v W Weddell & Co Ltd [1952] 2 All ER 337. [Back]
Note 248 The Julia [1949] AC 293. [Back]
Note 249 S. en S. 1985 Nr. 91, p 241. [Back]
Note 250 Ibid, p 245. [Back]
Note 251 See, for instance, Gronfors, “The Paperless Transfer of Transport Information and Legal Functions” in Schmitthoff & Goode (ed), International Carriage of Goods: Some Legal Problems and Possible Solutions (1988), p 19; Richardson, “Contracts of Carriage in the Electronic Age”, (1988) Journal of the Society of Fellows of the Chartered Insurance Institute, Vol 2, pt 2, p 53; Chandler, “The Electronic Transmission of Bills of Lading”, (1989) 20 Journal of Maritime Law and Commerce 571. [Back]
Note 252 See generally, Thomsen & Wheble (ed), Trading with E.D.I. – The Legal Issues (1989). [Back]
Note 253 Goode, Proprietary Rights and Insolvency in Sales Transactions (2nd ed, 1989), p 81 ff. [Back]
Note 254 Goode, in Schmitthoff & Goode (ed), op cit p xxvi. [Back]
Note 255 See para 1.11 above. [Back]
Note 256 See clauses 1(5) and 1(6) of the Bill. [Back]
Note 257 Such a document is not within the definition of “bill of lading” in clause 1(2) of the draft Bill. It seems to me, however, that it is at least arguable that it is a bill of lading for the purposes of the Hague-Visby rules. [Back]
Note 258 It is this point – that the buyer receives the bill in exchange for his money, and ought to be able to rely on it there and then – which justifies different rules for bills of lading (including straight consigned bills of lading) and sea waybills in this context and meets the arguments in paras 4.11 and 4.12 of the Report. [Back]
Note 259 Or, rather, some bills of lading. See para 15, below. [Back]
Note 260 Paras 2.34-2.39. [Back]
Note 261 The matter is not entirely beyond argument, but it would serve no purpose to go into that here. [Back]
Note 262 The Albazero [1977] A.C. 774 is relevant here. [Back]
Note 263 The draft Bill solves the problem in the case of sea waybills and ship’s delivery orders. For an alternative approach, see para 17 below. [Back]
Note 264 See paras 2.53-2.54 of the Report and Hain S.S. Co v Tate & Lyle (1936) 41 Com. Cas. 350, 356. [Back]
Note 265 It has often been pointed out that, even where the contract of carriage is not a charterparty, the bill of lading is not the contract. The bill of lading is usually signed some time after the contract has been concluded. [Back]
Note 266 See Henderson v Comptoir d’Escompte de Paris (1873) L.R. 5 P.C. 253, 260. [Back]
Note 267 Not a straight consigned bill of lading in favour of a named consignee only. [Back]
Note 268 Not, apparently, where the underlying contract of carriage takes the form of a charterparty. [Back]