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Judgments - Borealis Ab (Formerly Borealis Petrokemi Ab and Statoil Petrokemi Ab) V Stargas Limited and Others and Bergesen D.Y. A/S "Berge Sisar"

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    23. The other aspect was that the passing of the property had to be "upon or by reason of [the] consignment or endorsement". But property under a contract of sale passes when the parties to that contract intend it to pass; it passes by reason of the contract of sale, not by reason of the endorsement of the bill of lading. (Section 18 of the Sale of Goods Acts 1893 and 1971.) Under an FOB contract, the property in the goods prima facie passes upon shipment not upon the endorsement of or other dealing with the bills of lading. A contract for the international sale of goods commonly includes an express term covering the transfer of title. Similarly, s.18(2) and s.19(2) of the Sale of Goods Acts made relevant the question whether the seller has by taking a bill of lading making the goods deliverable to his own order reserved the right of disposal. The difficulties of using the criterion in the 1855 Act were increased by simple logistics. The goods would arrive and be discharged and delivered before the documents had completed their progress down the chain of the intermediate buyers and sellers and their banks. The endorsement of those documents ceases to have any role in relation to the possession or legal ownership of the goods. (The Delfini [1990] 1 Lloyd's 252) In the present case, by January 1994, the cargo of propane had probably long since been processed at Terneuzen and had ceased to exist.

    24. There were cases therefore where the 1855 Act could not be used and where the tool of inferring a Brandt v Liverpool contract became less and less useful. (eg The Aramis [1989] 1 Lloyd's 213 ) There were related problems arising from changed patterns of trade. Cargoes were shipped in bulk. Bills of lading were issued for quantities out of undivided consignments and those quantities were then sold to different buyers and the various bills of lading endorsed over to them. Such endorsements were ineffective to pass the legal title in part of an undivided whole to a purchaser. (In re Wait [1927] 1 Ch 606: See now the Sale of Goods (Amendment) Act 1995.) Further, the practice of issuing delivery orders for parcels out of a bulk cargo were similarly ineffective and the intended buyers were left without remedy against the carrier. (Margarine Union v Cambay Prince [1969] 1 QB 219, Leigh & Sillavan v Aliakmon [1986] AC 785.)

"Subject to the Same Liabilities":

25. The use of this phrase in the 1855 Act gave rise to immediate difficulty. What was the position of an endorser after he had endorsed over the bill of lading to another? How did endorsement affect the liabilities of the shipper? The answer was given in Fox v Nott (1861) 6 H&N 630 and Smurthwaite v Wilkins (1862) 11 CB(ns) 842. The endorser is not liable after he has endorsed over the bill of lading to another who is; the shipper remains liable as an original party to the contract. Two considerations seem to have weighed with the courts in these and the later cases. (See per Lord Lloyd of Berwick in Effort Shipping v Linden Management [1998] AC 605, at p 615-8.) The words "subject to the same liabilities" were to be contrasted with the words "have transferred to him". The liability of the endorsee was to be additional to that of the original contracting party. The other was to follow the reasoning which underlay the Allen v Coltart line of authority. It is the use of the bill of lading to demand and take delivery of the goods which is the basis of liability. Thus Erle CJ said in Smurthwaite v Wilkins at p.848:

    "Looking at the whole statute it seems to me that the obvious meaning is that the assignee who receives the cargo shall have all the rights and bear all the liabilities of a contracting party; but that if he passes on the bill of lading by indorsement to another, he passes on all the rights and liabilities which the bill of lading carries with it."

He rejected the argument that the endorser having passed on all his rights to the endorsee should retain all his liabilities in respect of the goods, saying (p.849) -

    "Such a construction might be very convenient for the shipowner but it would be clearly repugnant to one's notions of justice."

The judgment of Erle CJ was approved by the Earl of Selborne LC in Sewell v Burdick at pp.86-8 (see also p 83) and he echoed his language when he referred to a person who had had the bill of lading endorsed to him while the goods were at sea and who then chooses to take advantage of his possession of the bill of lading to "take the position of full proprietor upon himself with its corresponding burdens if he thinks fit";

    "and that he actually does so as between himself and the shipowner if and when he claims and takes delivery of the goods by virtue of that title."

The Drafting of the 1992 Act:

    26. By 1980 the difficulties in the 1855 Act had assumed serious proportions and the Act was failing to meet the needs of the mercantile community and the changed pattern of international trade and carriage by sea. There were other points of concern as well. In certain trades the use of paper bills of lading was becoming increasingly obsolete. Electronic documents were coming into use. Documents other than bills of lading were being used for the purposes previously served by bills of lading. Another related question which had to be considered particularly in the drafting of any new legislation was the concept when a bill of lading became 'accomplished', ie ceased to be capable of transferring rights to an endorsee (save by estoppel). This was always a potential problem under the 1855 Act but did not cause significant problems in practice. It was however a problem which would have to be faced by the draftsman of a replacement for the 1855 Act.

    27. The existing state of the law having been recognised to be unsatisfactory, the question was referred to the Law Commission and the Scottish Law Commission. Their Joint Report, "Rights of Suit in respect of Carriage of Goods by Sea" (Law Com No 196; Scot Law Com No 130), was published in March 1991 and appended a draft Bill. They concentrated upon the carriage of goods by sea and the adequacy of the 1855 Act and did not in that Report make recommendations for the amendment of the Sale of Goods Act. They reviewed in detail the various aspects to which I have referred. They made recommendations for reform. They rejected as inadequate amendments to s.1 of the 1855 Act which would simply have removed the requirement that the holder should have become the owner of the goods "upon or by reason of" the endorsement or which would have removed all reference to property in s.1, so that it sufficed for the purposes of both rights and liabilities that the person was the holder of the bill of lading. They preferred instead an approach which severed the link between property and right of action and transferred the rights of suit to the holder without more, but not the liabilities. They recommended that there should not be an automatic linking of contractual rights and liabilities; pledgees would not be liable "unless they sought to enforce their security". (§2.31) In support of their recommendation they said:

    "The statutory assignment model of the 1855 Act is familiar to international traders. … Our reform is an evolutionary one which recognises that those parts of the 1855 Act which have worked well should be retained. …" (§2.34(iv))

As regards the point at which the bill of lading ceases to be a transferable document of title, they adopted the existing test of delivery of the goods to the person entitled to receive them. (§2.42) As regards the liability of the holder under the bill of lading, their recommendation was in essence that a holder who seeks to take the benefit of the contract of carriage should not be permitted to do so without the corresponding burdens. (§§3.15 to 3.22) I will come back later to what they said.

    28. The recommendations are summarised in Part VII of the Report and the appended draft bill was designed to reflect those recommendations. The Bill was enacted without substantive amendment. Your Lordships are entitled to look at the Report in order to identify the mischief to which the Act is directed and, in the case of ambiguity, to help in resolving any such ambiguity.

The 1992 Act:

29. Not the whole of the Act is relevant to the present appeal. It is not necessary to quote those provisions which extend the descriptions of documents which are to be recognised as having a similar function to bills of lading nor the sections which revise s.3 of the 1855 Act. I will confine my quotation to what is directly relevant to bills of lading and the present appeal.

    "An Act to replace the Bills of Lading Act 1855 with new provision with respect to bills of lading and certain other shipping documents.

1.

This Act applies to … any bill of lading …

Rights under Shipping Documents

     2. (1) Subject to the following provisions of this section, a person

     who becomes-

(a) the lawful holder of a bill of lading; ...... shall (by virtue of becoming the holder of the bill .......) 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. (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;

Liabilities under Shipping Documents

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. (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. Interpretation etc 5. (1) In this Act "the contract of carriage" - (a) in relation to a bill of lading ..... means the contract contained in or evidenced by that bill; "holder", in relation to a bill of lading, shall be construed in accordance with subsection (2) below; (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. (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. 6. (2) The Bills of Lading Act 1855 is hereby repealed."

    30. This Act, in accordance with the view expressed in the Report, retains much of the basic structure of the 1855 Act. Much of its increased length and complexity derives from the fact that it covers other documents - way bills and delivery orders - besides bills of lading. It makes separate provision for the rights and the liabilities of a bill of lading holder. S.2(1) makes being the lawful holder of the bill of lading the sole criterion for the right to enforce the contract which it evidences and this transfer of the right extinguishes the right of preceding holders to do so: s.2(5). There are two qualifications: in simplified terms, the holder can sue and recover damages on behalf of another with an interest in the goods, s.2(4), and the transfer of a bill of lading after it has ceased to give a right to the possession of the goods does not confer any right of suit against the carrier unless the transfer was pursuant to an earlier contract or to the revesting of that right after a rejection by a buyer, s.2(2) and s.5(2). In the present case the provisions of s.2 do not give rise to any problem. Until, anyway, the discharge of the propane from the vessel at Terneusen to Dow Europe in the second half of November 1993, the bills of lading remained effective to give a right to the possession to the cargo as against Bergesen. Both the contract between Stargas and Borealis and that between Borealis and Dow Europe were made before that time. Therefore, Borealis and Dow Europe were in January 1994 successively holders of the bills of lading who came within the provisions of s.2(1) and (2) and the extended definition of "holder" in s.5(2).

    31. S.2 of the Act has adopted a different and more generous approach to the transfer of contractual rights than that adopted by s.1 of the 1855 Act in that it wholly omits the 'property' criterion. A party who takes a bill of lading as security, as a pledgee, has the contractual rights transferred to him under s.2. He can enforce them against the carrier or not as he chooses and may, if he chooses to do so, recover from the carrier also on behalf of the person with the full legal title (s.2(4)). This leaves the question whether the pledgee or similar person should come under any liability to the carrier. Under the 1855 Act he did not because he did not come within s.1 of that Act and acquired neither rights nor liabilities. The draftsman of the 1992 Act respected the commercial reasoning upon which Sewell v Burdick was based and did not require bankers and others taking the documents as security to have to accept any liabilities merely by reason of being the holders of the bills of lading. S.3(1) imposes additional requirements before a holder of a bill of lading comes under any contractual liability to the carrier. The solution adopted by the draftsman was to use the principle that he who wishes to enforce the contract against the carrier must also accept the corresponding liabilities to the carrier under that contract. This was the view expressed by the Earl of Selborne (sup.). It is the rationale of the cases leading up to Brandt v Liverpool. It is a principle of mutuality. It was spelled out in the Commissions' Report.

    "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 upon him under that contract." (§3.15)

    "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." (§3.18)

    "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." (§3.22)

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 the possession of the goods as the bailor as against the bailee. It is thus categorising the delivery up of the goods in this context as the performance of a contractual obligation 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. A bill of lading invariably includes words evidencing the carrier's agreement to deliver the goods at destination to "or order or assigns" or words to that effect; 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 it is the contractual rights, not the proprietary rights (be they general or special), 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 which arise from that relationship.

    32. In giving effect to this intention, s.3 of the Act postulates first that the holder in question must be a person in whom the contractual rights of suit have been vested by s.2(1). The language of s.2(1) adopts and is identical to the corresponding words in the 1855 Act: "shall have transferred [to] and vested in him all rights of suit". Section 3(1) paragraphs (a) and (b) relate to a person who, being a person who has those rights, chooses to exercise them either (a) by taking or demanding delivery of the goods or (b) by making a claim under the contract of carriage contained in or evidenced by the bill of lading. Both involve an enforcement by the endorsee of the contractual rights against the carrier transferred to him by s.2(1). Under (a) it is by enjoying or demanding the performance of the carrier's contractual delivery obligation. Under (b) it is by claiming a remedy for some breach by the carrier of the contract of carriage. Each of (a) and (b) involves a choice by the endorsee to take a positive step in relation to the contract of carriage and the rights against the carrier transferred to him by s.2(1). It has the character of an election to avail himself of those contractual rights against the carrier. There are however difficulties which neither the drafting nor the Report faces up to. Whilst taking delivery is a clear enough concept - it involves a voluntary transfer of possession from one person to another - making a "demand" or "claim" does not have such a specific character and, what is more, may be tentative or capable of being resiled from, a point commented upon by Millett LJ in the Court of Appeal at [1999] QB 884C-D. Delivery brings an end to the actual bailment of the goods and is (save in special circumstances) the final act of contractual performance on the part of the carrier. Claims or demands may on the other hand be made at any stage (although usually only made after the end of the voyage) and there may at the time still be performance obligations of the carrier yet to be performed.

    33. 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 the vessel. A 'demand' might be an invitation or request, or, perhaps, even implied from making arrangements; or it might be a more formal express communication, such as would have sufficed to support an action in detinue. From the context in the Act and the purpose underlying s.3(1), it is clear that s.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.

    34. But this is not the end of this problem. The use of the word "demand" is problematic as is the phrase "or at least attempting to enforce rights" in §3.18 of the Report. (It seems that those who wrote §3.18 had in mind such exceptional situations as where the cargo is destroyed while the vessel is waiting to discharge at the discharge port and after a demurrage liability recoverable under the bill of lading has arisen - an intriguing and, if I may be forgiven for saying so, a relatively unilluminating example.) If the carrier accedes to the demand and gives delivery as demanded, the demand is subsumed in the taking of delivery. If the carrier rejects the demand, a new scenario arises: is the endorsee going to make a claim against the carrier for refusing to comply with the demand? If the endorsee chooses to let the matter drop and not to make a claim, what significance of the demand remains? What principle of mutuality requires that the endorsee shall nevertheless be made subject to the liabilities of a contracting party? What if the endorsee chooses to endorse over the bill of lading to another to whom the carrier is willing to and does deliver the goods? The task of the judge, arbitrator or legal adviser attempting to construe s.3(1) is not an easy one and it is necessary to try and extract from it some self-consistent structure.

    35. So far I have been concentrating on paragraphs (a) and (b). Paragraph (c) presents further problems. It raises the relatively common situation where the vessel and its cargo arrive at the destination before the bills of lading have completed their journey down the chain of banks and buyers. The intended receiver has not yet acquired any rights under s.2(1). He is not entitled to demand delivery of the goods from the carrier. He may or may not be the owner of the goods but he quite probably will not at that time have the right to the possession of the goods; an earlier holder of the bill of lading may be a pledgee of the goods. This situation is dealt with commercially by delivering the goods against a letter of indemnity provided by the receiver (or his bank) which will include an undertaking by the receiver to surrender the bill of lading to the carrier as soon as it is acquired and will include any other stipulations and terms which the situation calls for. It may well at that time, either expressly or by implication, give rise to a Brandt v Liverpool type of contract on the terms of the bill of lading. But again the question arises: what is the character and the role of the demand referred to in paragraph (c)? Ex hypothesi, the intended receiver had no right to make the demand and the carrier had no obligation to accede to it unless there was some other contract between the receiver and the carrier, eg a charter party, which gave rise to that right and obligation in which case sections 2 and 3 have no application to that transaction. Paragraph (c) clearly involves an anticipation that the s.2(1) rights will be transferred to the receiver. The parenthesis which follows emphasises this: "by virtue of having the rights vested in him". This shows that it is a necessary condition of the receiver's becoming liable under s.3(1) that the rights are vested in him by the operation of s.2(1). The inclusion of the word "demanded" remains problematical. A rightly rejected demand for delivery by one who is not entitled to delivery is an act devoid of legal significance. What is significant is if the carrier decides (voluntarily) to accede to the demand and deliver the goods to the receiver notwithstanding the non-arrival of the bill of lading. Paragraph (c) does not include the making of a claim. The draftsman has accepted the irrelevance of a claim made by one who has no contractual standing to make it. Unless facts occur which give a relevance to the inclusion of the word "demanded" in paragraph (c), in my view the scheme of sections 2 and 3 requires that any such demand be treated as irrelevant for the purposes of s.3(1) and that the Act be construed accordingly. A 'demand' made without any basis for making it or insisting upon compliance is not in reality a demand at all. It is not a request made "as of right", which is the primary dictionary meaning of "demand". It is not accompanied by any threat of legal sanction. It is a request which can voluntarily be acceded to or refused as the person to whom it is made may choose. Accordingly it will be unlikely in the extreme that paragraph (c) will ever apply save where there has been an actual delivery of the cargo.

    36. Taking delivery in paragraphs (a) and (c) means, as I have said, the voluntary transfer of possession from one person to another. This is more than just cooperating in the discharge of the cargo from the vessel. Discharge and delivery are distinct aspects of the international carriage of goods. (See generally Scrutton on Charterparties, 20th ed (1996): Section XIII) Although the normal time for delivering cargo to the receiver may be at the time of its discharge from the vessel, that is not necessarily so. There may be a through contract of carriage. The goods may need to be unpacked from a container. The vessel may need to discharge its cargo without delay into a terminal. The discharge of the vessel is a necessary operation in the interests of the ship as well as of the cargo and requires the cooperation of others besides the shipowner. Providing that cooperation should not be confused with demanding delivery. The unloading of one cargo is for the shipowner the necessary preliminary to the loading of the next. Damaged or contaminated cargoes may need especial discharge because they may cause damage or pollution. Any unnecessary delays will cost the shipowner money and a loss to the charterer through incurring demurrage or forfeiting dispatch. Where the vessel is operating under a charter party it is more likely than not that the obligation to discharge will be that of the charterer. The charterer will be responsible for providing or arranging a berth at which the vessel can discharge. Where the cargo is a bulk cargo which has been sold by the charterer to the intended receiver, the contract of sale may require the buyer to perform the seller's charter party obligations in relation to the discharge of the vessel. The delivery to which s.3 is referring is that which involves a full transfer of the possession of the relevant goods by the carrier to the holder of the bill of lading. The surrender of the relevant endorsed bill of lading to the carrier or his agent before or at the time of delivery will ordinarily be an incident of such delivery. Where that is not done, the carrier will ordinarily require a letter of indemnity. The letter of indemnity will probably be the best evidence of what arrangement has been made and will probably contain appropriate express terms.

 
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