DMC Category Rating: Developed

Facts
The claimants in these two actions were related companies carrying on in Hong Kong a business of exporting goods manufactured in China to other parts of the world. In September and October 1998 (in the case of Maersk Line) and February 1999 (in the case of P&O), the claimants shipped goods in containers from Hong Kong to San Antonio in Chile, by liner services operated by Maersk Line (DKBS 1912 and AKTS Svenborg) and P&O Nedlloyd. The buyers in Chile were Gold Crown, based in Santiago; payment terms were cash against delivery. Liner bills of lading were duly issued for the consignments, naming the claimants as the shippers and Gold Crown as the notify party. The goods were consigned to the order of the various Chilean banks. The bills of lading were duly endorsed by the claimants and sent by the claimants’ bankers in Hong Kong to their correspondent bankers in Chile, with instructions only to release them against payment.

On arrival at San Antonio, the goods were, in accordance with Chilean Customs law, placed in a licensed Customs warehouse, pending the payment of import duty. Customs duty was paid on the goods and the goods in the containers were released to the Customs agent of Gold Crown, without presentation of the original bills of lading, and handed over to Gold Crown. Gold Crown did not pay for the goods in two of the containers carried by P&O and seven of the containers carried by Maersk. The Chilean banks were requested to return the bills of lading to the claimants, which they did without endorsing them back.

The bills of lading contained an English law and jurisdiction clause and the claimants accordingly commenced proceedings in the English High Court against the respective carriers, on the grounds that they had delivered cargo without presentation of the bills of lading, causing the claimants loss of US$134,800 in the case of Maersk and US$95,150 in the case of P&O.

The carriers defended the claim on a number of grounds.

1. The claimants had no title to sue
2. Under the law of Chile, carriers were required to deliver the goods to the licensed Customs warehouse. Once they had delivered the goods to the licensed warehouse, which they had to do without presentation of the bills of lading, they had discharged their obligations and the contract of carriage came to an end.
3. The express terms of the relevant bills of lading exempted the carriers from liability.
4. The carriers were not negligent in delivering the goods without production of the bills of lading.

The claimants contended that they had title to sue on a number of different bases.

1. They had retained their rights of suit as shippers and these had not transferred to the Chilean banks, even though the banks were named as consignees and the banks had obtained physical possession of the bills;
2. If rights of suit had been transferred to the Chilean banks, the claimants had title to sue as undisclosed principals of the banks;
3. If the claimants had lost their rights of suit and did not have them as undisclosed principals of the Chilean banks, the rights of suit had been transferred back to them;
4. They had, in any event, title to sue in bailment
5. They had the right to sue in negligence for the loss of their proprietary interest in the goods.

Judgment
1 Title to Sue
Before answering this question, the judge made a number of findings of fact; in particular, that the correspondent banks in Chile, which were named as consignees under the bills of lading, were appointed only for the purpose of collecting the price from the buyers as the agents (or sub-agents) of the claimants. The goods remained in the ownership of the claimants and neither the bankers in Hong Kong nor their correspondent bankers in Chile obtained any security or other interest in them. As between the banks in Chile and the claimants, the banks had no right to take delivery from the carrier. The claimants retained full control over the documents, as at all times the banks held them to their order and direction.

a) As regards the claimants’ argument a) above, the judge held that, by being named as consignees in the bills of lading, the banks became holders of the bills under s.5(2)(a)¹ of the Carriage of Goods by Sea Act, 1992, with rights of suit under s.1 of the Act, and, as a result, the shippers’ right to sue under the bills was extinguished by s.2(5) of the Act.

b) As regards their second argument, the judge held that, given the clear definitions of holder under s.5(2) of the Act, the right of suit should be personal to the holder and not exercisable by that person’s undisclosed principal.

c) As to the third point, the claimants argued that endorsement of the bills back to them by the banks (which had not taken place) was unnecessary, since by the time of the return of the bills to them, the goods had been delivered and the bills, therefore, no longer gave the right to possess the goods, as against the carrier. The bills gave only a claim for damages. The claimants accordingly contended that they were holders within the definition set out in s.5(2)(c) of the Act. The judge held that this was not correct; the bill of lading still gave, as against the carrier, a right to possess the goods, even after their wrongful delivery to Gold Crown. The authorities established that a bill of lading remained in force even after the goods had been misdelivered to a person not entitled to them. "The reason for this is clear," he said. "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… Until the goods are delivered to the person actually entitled, the bill of lading must remain the document of title to the goods." The right to possess the goods was, in the judge’s view, one of the primary rights emanating from the bill of lading’s function as a document of title. In these circumstance, s.2(2) of the Act was not applicable, as the bills of lading in this case still gave a right to possession of the goods as against the carrier.

d) The claimants’ claim in bailment also failed. The judge held that the right to possess the goods entrusted to the carrier was governed by the bill of lading contract and was not independent of it. As between the claimants and the carriers, the claimants’ rights in bailment and under the contract [bill of lading] were the same; there were no separate rights. Where, as here, the shipper was the true owner of the goods and had the right to their immediate possession under the bills of lading, then by operation of the 1992 Act, that contractual right to immediate possession is transferred, even if the shipper remained, as between him and the transferee, the party entitled to delivery. Thus there were no separate rights in bailment that were retained by the claimants.

e) In their final argument under this heading, the claimants contended that they could maintain a claim in negligence, based on their possessory and proprietary interest in the goods. Having found, see above, that the claimants did not have any possessory rights, the judge then had to consider whether a person who had only a proprietary right, without the immediate right to possess, could nevertheless bring a claim in negligence. The authorities established that such a claim would lie, where the claimants could prove that the negligence had deprived them of their interest in circumstances where the goods could not be recovered. That was, in his view, the case here. It was wholly impracticable for the claimants to have sought to recover the goods from Gold Crown in Chile. The judge added that this claim based on proprietary rights was outside the scope and independent of the 1992 Act.

2. The Obligation to Deliver
The judge held that, although English law, as the proper law of the contract, applied to the performance of the contract, regard had to be had to Chilean law, as the law of the country where performance was to take place. The carriers had submitted, in this regard, that, under the Customs law of Chile, a carrier was obliged to deliver goods, on which duty had not yet been paid [as was the case here], 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. Further, under the Hamburg Rules, which were in force in Chile, this constituted good delivery under the bills of lading. The judge found against the carriers on these points.

He held that an ocean carrier, carrying goods to Chile, was not obliged, as a matter of Chilean law, to deliver goods to the physical possession of Customs, but only to a Customs warehouse, licensed by Customs and subject to its jurisdiction. 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. This was so, even though neither the carrier nor the warehouse operator could retain the bill of lading, since the Chilean Customs broker was required to retain all originals of the bills. Neither the carrier, the Customs warehouse keeper, not the Container Operator [the entity, usually the agent of the carrier, empowered by Customs to issue a Title for the Temporary Admission of Containers (‘TACT’) – a temporary import permit for containers and, in practical effect, for the goods that they contained] had to accept the entitlement of the Customs agent [for the cargo interests] to possession of the goods, without presentation [sighting] of a original bill of lading. The carriers had undertaken in the bills of lading that delivery should be against presentation of an original bill and they should have ensured that they could discharge that obligation by an appropriate contract with the Customs warehouse operators and the Container Operators.

The provisions of the Hamburg Rules were of no assistance to the carriers on this point. Article 4.2(b)(iii) provided that the carrier’s period of responsibility ended on his 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." For the reasons summarised above, the judge held that the carrier was not obliged, within the meaning of the provisions of the Hamburg Rules, to ‘hand over’ the goods to the Customs in Chile; the carrier did not deliver the goods to Customs, but placed them with a Customs warehouse operator, subject to the jurisdiction of Customs.

3. The Bill of Lading Obligations
As regards the obligation of the carriers under English law to deliver under the bills of lading, the judge did not accept the argument that there was an implied term in the bills that entitled the carriers to deliver without presentation of a bill of lading in cases where there was a reasonable explanation of its absence. The carriers had based this argument of a passage from the judgment of Clarke J. in ‘The Somovsky 3068’ [1994] 2 Lloyd’s Rep. 266, but this part of the judgment had not been followed in another High Court case, that of Motis Exports v. DKBS (1912) [1999] Lloyd’s Rep. 837. The judge preferred to follow the Motis Exports line, since to give the carrier the right to deliver without production of the bill of lading in such circumstances "would undermine the security of the bill of lading".

Although the bills of lading contemplated their being surrendered to the carrier and kept by him, the judge held that the provision of Chilean law - under which the original bills of lading had to be retained by the Customs agent and so could only be presented to (seen by) the carrier – was "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."

The carriers were also unsuccessful in their attempts to rely on the ‘port-to-port’ provisions in their bills of lading, under which they disclaimed responsibility for loss of or damage to the goods ‘before loading or after discharge over the ship’s rail’. In the first place, the judge found that the shipments in question were not ‘port-to-port’ transactions, as the ‘place of receipt’ and ‘place of delivery’ spaces on the face of the bills had been completed. Secondly, the judge agreed with the Court of Appeal in the Motis Exports case, which had held that the exclusion of liability in the port-to-port provisions was not applicable to cases where the carrier had deliberately misdelivered the cargo, whether "without any bill of lading or against a forged and therefore nul document believed to be a bill of lading". The judge held that the same applied to the ‘catch-all’ clause in the P&O Nedlloyd bill of lading, under which the carrier’s rights as provided for in the bill of lading were to 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."

4. The Claim in Negligence
The judge held that the claim against the carriers in negligence succeeded. He said:
"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 to 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 TACT 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 TACTs only after presentation of an original bill…. Neither shipping line appears to have taken 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…"

Judgment was accordingly given in favour of the claimants.

¹. The relevant provisions of the 1992 Act are as follows:

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 right or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill…

S.2(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 –

1. where that document is a bill of lading, from a person’s having been an original party to the contract of carriage…..

S.5(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;

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.