BNP Parisbas v. Bandung Shipping

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DMC/SandT/03/33
BNP Paribas v Bandung Shipping Pte Ltd; The "Victoria Cob"
Singapore High Court: Belinda Ang J: 12 May 2003
Gabriel Peter & Partners, for BNP
Kenneth Tan Partnership, for Bandung
DELIVERY OF CARGO WITHOUT PRODUCTION OF BILL OF LADING: BANK’S TITLE TO SUE IN CONTRACT AND FOR CONVERSION: USE OF SWITCHED BILLS OF LADING: BANK BECOMING HOLDER OF BILLS OF LADING AFTER DELIVERY OF CARGO: WHETHER BILLS OF LADING SPENT OR EXHAUSTED: WHETHER CARGO WAS PLEDGED TO BANK: WHETHER BANK AUTHORISED DELIVERY WITHOUT BILLS OF LADING
Summary
BNP financed several purchases of palm oil by Shweta under a credit facility. Shweta voyage chartered "Victoria Cob", owned by Bandung. Bandung issued 38 bills of lading made out to order, of which 12 were switched bills of lading. Bandung delivered the cargo in Kandla, India to Shweta’s buyer without production of the bills of lading. The 12 switched bills and 24 of the other bills of lading were indorsed in blank and delivered to BNP after delivery of the cargo. BNP, as the lawful holder of the bills of lading and/or the person entitled to immediate possession of the cargo, sued Bandung for breach of contract and conversion. Bandung challenged BNP’s title to sue, and argued in the alternative that the delivery was made with the consent or authority of BNP. The High Court of Singapore rejected Bandung’s defences and gave judgment to BNP.

Facts
BNP had financed several purchases of crude oil by Shweta under a credit facility granted in July 1999. Shweta voyage chartered the vessel "Victoria Cob" from her owners, Bandung, to deliver the crude oil to its customer, Lanyard. Bandung delivered crude oil carried under 38 bills of lading to Lanyard in Kandla, India between May and June 2000 against Lanyard’s letters of indemnity, without production of the bills of lading. These 38 bills of lading were made out to order and may be grouped into three categories:

1) Two bills of lading named Shweta’s suppliers as shippers. It was accepted by Bandung that BNP was the pledgee and lawful holder of these bills of lading.

2) 12 bills of lading were switched bills issued by Bandung in exchange for the original set, pursuant to an arrangement provided for in the voyage charterparty. The switched bills were issued for the same cargo as the original set, with some alteration in the details like date and load port. All the bills named Shweta as shipper. Two of the switched bills were indorsed to BNP before the cargo was discharged and the remainder were indorsed to BNP after discharge.

3) 24 bills of lading were issued in respect of cargo that was loaded on board "Victoria Cob" in Batam. This cargo was part of a larger consignment that had been carried by the vessel "Vincita" to Batam. BNP obtained the "Vincita" bill of lading without knowing that part of the cargo had been shipped by "Victoria Cob" from Batam to India. After BNP learnt of the shipment by "Victoria Cob", it demanded that Shweta, who was the named shipper in the 24 bills of lading ("the Batam bills") indorse and deliver them to BNP. This was done after the cargo had been delivered by Bandung to Lanyard in India.

BNP claimed that it was the lawful holder of the 38 bills of lading and/or the person entitled to immediate possession of the cargo. It sued Bandung for breach of the contract evidenced by those bills of lading and for conversion.

Bandung challenged BNP’s title to sue in respect of the switched bills and the Batam bills. It also alleged that delivery without production of bills of lading was done with the consent or authority of BNP.

The main arguments relied on by Bandung were as follows:

1) BNP was not a pledgee of the switched bills and the Batam bills because there was no specific undertaking by Shweta that the cargoes represented by those bills were to be pledged. Further, BNP was only the remitting bank for the shipping documents and had no implied pledge over the cargo.

2) Alternatively, BNP was aware that letters of indemnity were to be used and must be taken to have agreed to this course or consented to the use of the letters of indemnity to obtain discharge.

Judgment
1. The judge found that the cargo in each case was pledged to BNP by the deposit of generally indorsed bills of lading. The bank as pledgee became the holder of the bills of lading by virtue of section 5(2)(b) of the Bills of Lading Act* (the "BLA"). A holder is entitled to sue in contract in respect of any breach of contract committed even prior to the time at which the claimant became holder of the bill. A lawful holder is defined by the BLA as a person in possession of the bill who is either the consignee or the indorsee to whom the bill has been transferred in good faith.

2. The bills of lading were not spent as the cargo was delivered to persons who were not entitled to possession of them. The contract of carriage generally continues and the bill of lading remains effective until the goods are delivered to the person entitled under the bill of lading.

3. BNP was a holder who came within the provisions of section 2(2) of the BLA and the extended definition of "holder" in section 5(2).* A holder of a bill which is indorsed after delivery could still sue the carrier in contract, if he became holder by virtue of some prior transaction (such as the credit facility agreement between BNP and Shweta in this case) before the bill of lading became spent.

4. With regard to the switched bills, the release of the original bills of lading to Shweta did not put an end to the pledge on the cargo. When the original bills were surrendered for cancellation and in exchange for the switched bills, Shweta held the switched bills, albeit for a very short time, on trust for the bank and on the same terms. The switched bills were indorsed and transferred to BNP within the same day the original bills were released to Shweta. The rationale for an implied pledge, which was the furnishing of the original bills of lading indorsed in blank to the bank as security for payment to suppliers by the bank, would apply equally to the switched bills.

5. The delivery of the switched bills by Shweta to BNP was not solely to enable BNP to collect payment from Lanyard’s banks in India, but entitled BNP to have the cargo delivered to it if its debt was not satisfied. The bank never had any intention, implied or otherwise, to surrender its security over the switched bills before payment by Lanyard.

6. With regard to the Batam bills, the effect of the delivery of the Batam bills and their indorsement in blank was to create an implied pledge of the same cargo, which had previously been pledged using the "Vincita" bill. It was a re-pledge of part of the same cargo with another "key to the warehouse". With two keys at its disposal, BNP had recourse to either of the two keys when it came to enforcing the security.

7. In order to succeed in conversion, BNP had to be able to show its entitlement to possession or delivery as at the time of the conversion. BNP was holder of two switched bills that were indorsed before delivery. For the other 36 bills, the cargo was discharged before the pledge was created or before BNP became holder. Therefore, BNP could sue in conversion for only the two switched bills.

8. As regards the second of Bandung’s arguments (consent), there was no evidence that BNP was told or was aware that the cargo would be discharged to Lanyard against letters of indemnity.

9. Clause 16 of the voyage charterparty (which was incorporated into the bills of lading and provided for release of the cargo to receivers against the charterers’ letter of indemnity "in the absence of original bs/l at discharge ports") reflected Bandung’s willingness to run the risk of being held liable for wrongful discharge of cargo, should problems arise in relation to payment. The right of the holder of a bill of lading is not taken away by a provision for the vessel to discharge against a letter of indemnity, even though the vessel would arrive at the discharge port ahead of the bill of lading.

10. Accordingly, the judge found Bandung liable for breach of the contracts evidenced by the bills of lading. The judge also found Bandung liable for conversion in respect of the cargo shipped under two of the switched bills of lading – see 7. above. Judgment was awarded to BNP, with costs and damages to be assessed by the Registrar.

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*Bills of Lading Act (Cap 384)
Section 2(2) reads as follows:

Where, when a person becomes the lawful holder of a bill of lading, possession of the bill of lading 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.

Section 5 reads as follows:

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) 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.

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