Note: the decision in this case has been reversed by a decision of the Hong Kong Court of Appeal dated 13 July 2007. To access the note on the Court of Appeal decision, click here

DMC Category Rating: Confirmed and Developed

Background
This decision involved two separate actions brought by Carewins, a Hong Kong exporter, against different carriers claiming for misdelivery of goods shipped from Hong Kong to Los Angeles.

In each case, Carewins sold items of footwear to its customer, Artist Fashion, and arranged for shipment from the factory in China to Hong Kong and then from Hong Kong to Los Angeles. The carriers on the Hong Kong/Los Angeles leg of the journey issued "straight" bills of lading, naming Artist Fashion as the consignee. On arrival at Los Angeles, the containers were to be delivered to Artist Fashion's warehouse by Trans-Union Group ("TUG") under a sea freight non-exclusive agency agreement entered into with one of the carrier defendants.

The shipments were made in March/April 2003 and totalled 45 containers. 23 of these were delivered to the warehouse without Artist Fashion having presented an original bill of lading. This might not have caused a problem, had the containers not then been seized by US officials acting under a court order in US proceedings brought against Artist Fashion by Burberry Ltd alleging trademark infringements.

The dispute with Burberry was settled, but the terms did not include the return of the seized footwear. As a result, Artist Fashion did not pay Carewins for the goods. It also refused to take delivery of the remaining containers because they had arrived after the commencement of the Burberry action. The fate of the 23 containers was unknown, but it was likely they had been sold by the port authorities at public auction.

The attestation clause in the bills of lading stated "in Witness Whereof, the carrier by its agents have signed three (3) original Bills of Lading all of this tenor and date, one of which being accomplished and the others to stand void". It did not, however, include the usual following sentence "One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order".

Clause 2 provided that the US Carriage by Goods by Sea Act applied to the liability of the carriers "in respect of the Goods during the period commencing with their being loaded onto any sea going vessel and continuing up to and during discharge from that vessel", but otherwise "the [carriers] shall be under no liability in any capacity whatsoever for loss or misdelivery to the Goods however caused …". Where US COGSA applied, liability would be limited to US$500 per package unless the value and nature of the goods had been declared in writing: clause 3.

Carewins issued proceedings against the carriers because they had delivered the goods without requiring original bills of lading to be presented. The carriers, however, argued that they had duly delivered the goods to the named consignee. The bills of lading omitted any express requirement for presentation and the so-called "presentation rule" should not be implied into straight bills of lading because straight bills (as opposed to "to order" bills) are not by their nature transferable to anyone other than the named consignee.

If that argument failed, the carriers relied on the exemption in clause 2 of the bills of lading. Carewins, however, maintained that these provisions were rendered invalid by the Hague/Hague-Visby Rules.

Judgment
Straight Bills
The carriers were arguing against the weight of substantial authority. In Voss v APL Co PTE Ltd [2002] 2 Lloyd's Rep 707, the Court of Appeal in Singapore distinguished a straight bill of lading (to which the presentation rule applies) and a sea waybill (where presentation by the named consignee is not required). A straight bill, though not transferable in the same way as a bill of lading made "to order", is nevertheless a bill of lading. By issuing the instrument as a bill of lading, rather than as a sea waybill, the parties must have wished to retain all the other features of a bill of lading, including the requirement for presentation.

This approach was supported by the House of Lords in MacWilliam Co Inc v The Mediterranean Shipping Co SA (The "Rafaela S") [2005] 1 Lloyd's Rep 347, although the question of presentation was not directly in issue. The House of Lords had to decide whether a straight bill of lading, even though non-negotiable, was a document of title for the purposes of the Hague or Hague-Visby Rules. They concluded it was. On the presentation point, the bill of lading in question contained an attestation clause requiring presentation on delivery. The House of Lords, however, confirmed that production of a straight bill of lading was a prerequisite to delivery, even in cases where there was no such express provision.

The judge in this case saw no reason to depart from authority. He would go so far as to say that production of the bill was a necessary precondition of delivery even in the absence of any express term. But in this case, he was satisfied that the attestation clause (even though it excluded the usual second sentence) made presentation a prerequisite.

Similar wording had arisen in Sucre Export SA v Northern River Shipping Ltd (The "Sormovskiy 3068") [1994] 2 Lloyd's Rep 266, where the court, considering an order bill, held it was implicit from the express provision for three bills ("one of which being accomplished and the others to stand void") that, save in exceptional circumstances, a carrier must not deliver the goods otherwise than against presentation of an original bill. The judge in this case could not see why a similar phrase in a straight bill should be given a different meaning. Consequently, the carriers had breached their contract.

Exemption
Were the carriers entitled to rely on clause 2 of the bills of lading? Carewins said they were not. Article III Rule 8 of the Hague-Visby Rules (incorporated into Hong Kong law by section 3 of the Carriage of Goods by Sea Ordinance, Cap.462) provides:

"Any clause, covenant or agreement in a contract of carriage relieving the carrier from liability for loss or damage to, or in connection with, goods arising from negligence, fault or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be void and of no effect … ".

The carriers, however, argued that the Rules had no application. Under Article I(e) of the Rules, "'Carriage of goods' covers the period from the time when the goods are loaded on to the time they are discharged from the ship". The carrier's duties under Article II are to "properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried" (although Article 7 enables the parties to enter into further agreements regarding responsibility prior to loading and after discharge).

The question, therefore, was whether at the time the misdelivery took place "discharge" was complete. The carriers said it was, because the goods had been handed over to TUG and driven to the warehouse, about an hour away from the port. The Hague-Visby Rules no longer applied and clause 2 remained operational.

Discharge
The judge agreed with the carriers. The point at which the mandatory regime of the Rules ceases and private contractual obligations take their place is not always easy to define. On the facts, the judge concluded that the misdelivery took place when the goods were initially handed over (without production of a bill of lading) to TUG or its subcontractor at the port. It was a strong inference from the available evidence that the cargo was fully discharged before clearance by US Customs, at which point TUG or its agents took possession.

There was no justification for extending the concept of "discharge" under the Rules beyond final unloading to include every step up to and including delivery: The "Captain Gregos" [1989] 2 Lloyd's Rep 63. To do so would be tantamount to regarding the carrier as both carrier and warehouseman.

The contractual provisions were, therefore, in force at the time of misdelivery. Even though clause 2 was so broad that it effectively exempted the carrier from liability for breach of its fundamental obligations under the contract, such exemption clauses may be upheld by the court provided they are expressed in clear terms: Photo Production Ltd v Securicor Ltd [1980] AC 827. Each case will depend on the wording of the particular clause and the circumstances. In this instance, however, clause 2 was sufficiently clear - referring as it did to liability for misdelivery "however caused".

Consequently, although Carewins had shown there had been a misdelivery, this was a pyrrhic victory, as the carriers were able to rely on the exemption.

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