Debattista on Bills of Lading in Commodities Trade 9781780438429, 9781780439297, 9781784510350

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Debattista on Bills of Lading in Commodities Trade

Debattista on Bills of Lading in Commodities Trade Fourth Edition

Charles Debattista MA (Oxon), BA (Jurisp) (Oxon), LL.D. (Malta) Of Middle Temple, Head of 36 Stone

Francis Hornyold-Strickland MA (University of London), BA (English Studies) (Dunelm) Of Middle Temple

BLOOMSBURY PROFESSIONAL  Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA  29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Charles Debattista 2021 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/opengovernment-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2021. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN:

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Preface ‘Now I  consider that the phrase “bill of lading” as used with respect to a c.i.f. contract means a bill of lading as established in a long line of legal decisions. Unless this meaning is given the matter is thrown into confusion.’ McCardie J in Diamond Alkali Export Corporation v Fl Bourgeois [1921] 3 KB 443 at 449 The above words were written exactly a century ago, which is why we thought they deserved pride of place at the head of this Preface. The long line of legal decisions continues – and the threat of confusion endures! Another sobering measure of time is that thirty-one years have passed since this work appeared in its first edition in 1990 under the title The Sale of Goods Carried by Sea. The passage of three decades provides an opportunity to draw breath and to consider how much has changed since then, even apart from the title. It is difficult to credit now, in the paperless world we have come to inhabit by dint of Covid-circumstance, quite how document-based our world was in 1990 – and how, in a particularly germane sense, it has so remained. 1990 was, of course, almost two years before the internet changed the way we access, collect and exchange information. You would not then, as you may now, be reading this page on a screen rather than in your hands. Likewise, BOLERO (and others who followed on the road towards paperless trade) had yet to appear. Aspirations towards – and rumours of – the wholesale replacement of paper documents of title were already, however, whispered about in the City. Indeed, one of the reasons for keeping the phrase ‘Bill of Lading’ off the title-page of that first edition was the suggestion that the death of the paper bill of lading was imminent and that its insertion in the title might soon make the book look dated. What goes around, however, as the saying goes, comes around and the Law Commission’s work on Digital Assets has put bills of lading at the top of its agenda which is planned to lead to a consultative ‘paper’ later this year. The Law Commission of England and Wales was, of course, responsible for the biggest single legislative development in the three decades since 1990: the Carriage of Goods by Sea Act 1992, which hauled into modern legal daylight issues concerning the cargo-claimant’s title to sue the carrier. Other ‘soft law’ changes since 1990 include three versions of the International Chamber of Commerce’s Incoterms Rules, in 2000, 2010 and 2020, and the Uniform Customs and Practice for Documentary Practice, the UCP  600. Standard forms came and standard forms went, both in the shipping and in the commodities worlds. And, as indicated above, the ‘long line of legal decisions’ has continued, ebbing and flowing with the movement of the shipping and commodity markets in the intervening thirteen years, bracketed as those years are by the financial crisis in 2008 and, now, Covid-19. It must moreover be remembered that decisions in the courts form only the tip of the iceberg, with many legal disputes, in our own v

 Preface practices and in that of many others, in international arbitrations, whether under the terms of the London Maritime Arbitrators Association or under the rules of the various commodity associations. Coming now to the book itself, apart from the change of title, the biggest single change is the presence for the first time of a co-author, a welcome sharing of the burden which has made it possible for us to make our deadlines despite these trying and unusual times. With the move of one of us from an academic to a full-time practising career, the interval between the third and the fourth edition would have been far – and unconscionably – longer without a sharing of tasks. In keeping with what we hope remains the seamless motif of the book, we decided at the very start of our collaboration not to split responsibility for separate chapters, but to work together across the full span of the book. This has allowed us both to spar, particularly on new areas now included, and to maintain a unity of style. Although co-authorship was something new to both of us, we venture to say that it has worked and we look forward to working together on future editions. Despite all of these changes, or perhaps because of them, the original themes of the first edition endure, which we presume is why the publishers were keen to pursue us for what at times appeared to be an unattainable delivery of what used to be called a ‘manuscript’. The book seeks to fill a niche cutting across several areas filled by other, larger tomes. Shipping lawyers are well-served by carriage books, commodities lawyers by sales books, and bankers by letter of credit books. Bills of lading are not, however, just shipping documents, commercial documents or banking documents: they are all three, at different times and simultaneously, frequently raising legal problems cutting across shipping law, commerce and banking. The aim of this work is to assist in avoiding the confusion to which McCardie J was alive a hundred years ago, to examine bills of lading and similar documents as they operate in the interstices between carriage, sales and letters of credit, seeking to solve, in a multi-dimensional way, problems which at times appear to have a Rubik’s cube level of complexity. It is customary to end a Preface with expressions of gratitude. We do so here, but in more than customary measure. Andy Hill, Head of Legal Publishing UK with Bloomsbury Professional, has overseen the entire project with his usual grace, tact and above all his deep knowledge of the legal publishing market: Andy was, in fact, closely involved with earlier editions of the work and it was wonderful to work with him again. Peter Smith was the man charged with keeping the text in order as our editor: Peter’s keen eye delivered us from errors which might otherwise have escaped our timely attention – and for this we are immeasurably grateful. Finally, Sharon Heaton of the publishers’ marketing department has been tireless in her efforts to bring this work to market, as it were, in the trying virtual methods which Covid-19 has imposed on us all. To all three, Andy Hill, Peter Smith and Sharon Heaton, go our sincere thanks. Charles Debattista Francis Hornyold-Strickland January 2021 vi

Contents Page Preface v Table of Statutes ix Table of Cases xi 1

Documentary Sales on ‘Shipment Terms’ 1 Introduction 1 Documentary Sales on Shipment Terms 6 Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 8 Letter of Credit Described 18 Identifying the Terms of the Contract of Sale 21

2

The Buyer Obtains the Right to Delivery of the Goods Through Specific Types of Document A Framework of Questions – and Concepts The Right to Delivery of the Goods Under COGSA 1992 Competing Claimants to Delivery

31 31 35 66

3

How a Seller Transfers Rights to a Buyer Transferability is not the Same as Negotiability Shipping Documents That are Transferable Shipping Documents That are Negotiable

77 77 83 89

4

The Point at Which the Buyer Assumes the Risk of Loss and the Circumstances in Which They can Sue the Carrier 93 The ‘Transfer’ of ‘Risk’ and the Transfer of ‘Property’ are Separate Concepts 94 Risk in Shipment Sales 95 The Seller has a Duty to Provide the Buyer with Title to Sue the Carrier, Which is Normally Achieved Through COGSA 1992 111 Where COGSA 1992 Does not Operate, the Buyer may Rely on an Implied Contract and/or Negligence 115

5

The Time When Property Passes to the Buyer Property and When it is Relevant SOGA 1979 and the Transfer of Property Contractual Terms as to the Transfer of Property Transfer of Property and Bills of Lading Transfer of Property and Letters of Credit vii

121 121 123 129 134 137

 Contents 6

The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped 139 The Role of the Bill of Lading as a Receipt is Relevant to Both the Carriage Contract and the Sale Contract 140 The Role of the Bill of Lading as a Receipt is Relevant to Letters of Credit 141 The Bill’s Function as a Receipt is Conclusive Proof of Certain Matters 142 Buyers’ and Sellers’ Rights to Demand a Clear Receipt From the Carrier 147 The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender Under Sale Contracts and Letters of Credit 154

7

Tender of the Bill of Lading as a Contract of Carriage 173 The Bill of Lading is Evidence of the Terms of the Contract of Carriage 173 Terms of the Carriage Contract Purchased by the Buyer 174 The Seller has a Duty to Procure for the Buyer a Contract of Carriage 178 The Bill of Lading Must Provide Continuous Documentary Cover to the Destination Port Agreed in the Sale Contract 181

8

Tender of Bills of Lading Under Charterparties Problems can be Caused by There Being Different Potential Sources of Contractual Terms Under Which Contractual Terms is the Buyer to Sue the Carrier? Whom is the Buyer to Sue for Short-delivery or Damage to Goods? Ie Who is the Contractual Carrier? The Bill of Lading as a Receipt in the Hands of a Charterer Buyer’s Rights Where a Bill of Lading is Issued Under a Charterparty

9

Rejecting Documents and Goods Seller’s Physical and Documentary Duties as to the Time of Shipment: Conditions of the Contract Documentary Duties in General and Termination for Breach Buyer’s Remedy of Termination: Practical Constraints Buyer’s Remedies of Rejection: Documents and Goods

Appendix: Statutes Sale of Goods Act 1979 Carriage of Goods by Sea Act 1971 Carriage of Goods by Sea Act 1992

201 202 204 217 220 223 231 234 237 249 252 275 275 309 320

Index 325

viii

Table of Statutes para Bills of Lading Act 1855.......2.8, 2.17, 2.20, 4.32, 8.13 s 1................................................... 2.2 Carriage of Goods by Sea Act 1924.........................................2.21, 6.11 Carriage of Goods by Sea Act 1971...............................  2.4, 2.11, 2.30, 2.42, 2.43, 3.6, 6.4, 6.9, 6.11, 6.13, 6.14, 6.15, 6.16, 6.28, 7.16, 7.20, 7.21, 7.27, 8.6, 8.19, 8.24, 8.25, 8.26, 8.28 s 1................................................... 6.11 (2).............................................. 8.26 (6)(b)......................................2.11, 2.32, 2.34, 2.45, 3.6 (7).............................................. 7.24 Schedule (Hague-Visby Rules).................................6.11, 7.24, 8.25 art I............................................ 6.11 (b).......................................  6.5, 8.6, 8.19, 8.26 (c).....................................7.21, 7.24 (e)....................................... 2.4 III.......................................8.25, 8.26 III.2...................................... 7.21 III.3.................................. 2.21, 2.27, 6.11, 6.12, 6.14, 8.25, 8.26, 8.27 III.4........................... 2.45, 2.46, 4.7, 6.4, 6.5, 6.6, 6.11, 6.14, 6.28 III.5...................................... 6.14 III.7...................................... 6.11, 9.6 III.8...................................7.16, 7.21, 7.29, 8.19 IV.4................................... 7.16, 7.20 IV.5...................................... 8.19 V..................................6.5, 6.11, 8.6, 8.19, 8.25, 8.26 X.......................................... 6.11

para Carriage of Goods by Sea Act 1992.......... 1.28, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 2.13, 2.16, 2.17, 2.18, 2.20, 2.25, 2.29, 2.30, 2.34, 2.35, 2.38, 2.39, 2.40, 2.42, 2.43, 2.44, 2.47, 2.48, 2.49, 2.51, 2.52, 2.53, 2.54, 2.55, 2.56, 2.57, 2.63, 2.64, 2.65, 2.68, 3.4, 3.5, 3.9, 3.10, 3.12, 3.16, 4.1, 4.6, 4.11, 4.24, 4.28, 4.32, 4.34, 4.36, 5.21, 6.4, 6.5, 6.15, 7.1, 7.3, 7.6, 7.11, 8.13 s 1(2).............................................. 7.3 (a)............2.11, 2.34, 2.40, 2.51, 3.12 (b)..............................2.12, 2.51, 3.12 (3)..................................2.34, 2.35, 2.41, 2.43, 3.17, 7.1, 7.3 (b)......................................... 2.35, 3.8 (4).............................................. 2.48, 7.1 (b)......................................... 3.14 (5).............................................. 2.25 2.............................  1.15, 1.23, 4.24, 8.13 (1)..................2.29, 2.53, 2.64, 7.3, 8.13 (a)....................2.10, 2.20, 2.35, 2.40, 2.49, 2.55, 2.57, 2.60, 2.68, 3.12, 3.17 (b)...................... 2.41, 3.9, 3.10, 3.11 (c)..............2.38, 2.49, 2.57, 3.4, 3.14 (2)...................................2.29, 2.30, 2.31 (a).......................................... 4.11 (4).............................................. 4.11 (5)................................. 2.34, 2.35, 2.44, 2.56, 3.8, 4.11, 6.4 (a).......................................... 2.55 3.................................................2.64, 8.37 4............................... 2.11, 2.32, 2.46, 6.5, 6.6, 6.14, 6.28 5..........................................3.12, 7.7, 8.13 (1).............................................. 2.10 (a).......................................... 6.4 (b)......................................... 2.48 (2)............................................2.20, 2.55 (a)........................................3.12, 4.28 (b)................... 2.16, 2.17, 2.64, 3.12, 4.26, 4.28, 4.29, 4.30

ix

para Carriage of Goods by Sea Act 1992 – contd s 5(3)..........................2.34, 2.35, 2.57, 3.8, 3.9, 3.10, 3.14, 3.17 (4)(a).......................................... 4.35 (2).............................................. 4.32 Companies Act 2006 s 859A(1), (6)................................ 5.16 859H(3)...................................... 5.16 Contracts (Rights of Third Parties) Act 1999...................1.20, 6.16 s 1................................................... 6.16 6(5)............................................ 1.20, 6.16 Factors Act 1889..............................  3.5, 3.7 s 1(4)..................3.7, 3.15, 3.16, 3.17, 3.18 2................................................... 2.66 Law of Property Act 1925.............. 3.2 s 136(1).......................................... 3.2 Misrepresentation Act 1967 s 2(1).............................................. 6.8 Sale and Supply of Goods Act 1994........................................... 9.15 Sale of Goods Act 1893 s 14(1), (2)..................................... 4.7 Sale of Goods Act 1979.....1.12, 2.55, 2.58, 3.5, 3.7, 4.3, 4.12, 5.1, 5.3, 5.4, 5.8, 5.11, 6.36, 9.33 s 11(2)............................................ 9.18 12(2)(b)....................................... 2.58 13...............................................1.12, 6.36 (1A)......................................... 1.12 14................................................. 1.12 (2)............................................ 4.7 (6)............................................ 1.12 15................................................. 1.12 (3)............................................ 1.12 15A........................................... 9.14, 9.15 16................. 4.5, 5.5, 5.6, 5.9, 5.10, 5.14 17................................................. 5.4 18.................................................  4.5, 5.5 r 1–4....................................... 5.5 5.........5.5, 5.7, 5.9, 5.10, 5.12, 5.14 (1)...................................... 5.9 (2).................5.10, 5.13, 5.18, 5.19 (3), (4)............................... 5.11 19................................................. 5.5, 5.13 (1)............................................ 5.14 (2).................................5.17, 5.18, 5.19

para Sale of Goods Act 1979 – contd s 19(3)......................................... 5.13, 5.17 20......................................... 4.2, 4.13, 5.5 (1)............................. 4.3, 4.4, 4.5, 4.12 (a)........................................ 5.8 (b)....................................... 5.8 (2)................................ 4.12, 4.13, 4.14 (3)................................ 4.12, 4.15, 4.16 20A............................... 5.5, 5.6, 5.8, 5.10 (1)(a).................................... 5.8 20B..............................................  5.5, 5.8 24, 25.......3.7, 3.15, 3.16, 3.17, 3.18, 5.1 26................................................. 3.7 27................................................. 1.7 29(2)............................................ 1.7 (4)............................................ 3.7 30(2)............................................ 9.16 (2A)(b).................................... 9.16 32(1)........................................  4.17, 4.21 (2)................. 4.12, 4.17, 4.18, 6.2, 7.1, 7.10, 7.11, 8.33 (3)............................... 4.12, 4.19, 4.20, 4.21, 4.22 33.............................................. 4.12, 4.23 34................................................. 9.41 35..................................... 9.27, 9.37, 9.41 Pt V (ss 38–48)............................. 9.2 s 38–43.......................................... 5.20 44...............................................2.17, 2.59 45................................................. 2.59 (6)..........................................2.59, 2.60 46................................................. 2.59 (1)............................................ 2.60 47....................................... 3.7, 3.15, 3.17 Pt VI (ss 49–54)........................... 9.2 s 49................................................. 5.1 (1)............................................ 2.60, 5.1 (2)............................................ 5.1 55.............................................. 6.36, 6.38 61(1)............................................  5.5, 5.9 (4)............................................ 2.59 Sale of Goods (Amendment) Act 1995........................................... 5.8 s 1(2).............................................. 5.11 Unfair Contract Terms Act 1977... 6.36 s 13................................................. 6.36 26................................................. 6.36

x

Table of Cases para A AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 263.............................................1.34 A-G of Ceylon v Scindia Steam Navigation Co, India [1962] AC 60, [1961] 3 WLR 936, [1961] 3 All ER 684, [1961] 2 Lloyd’s Rep 173, [1961] 10 WLUK 1, (1961) 105 SJ 865.............................................................................6.11 AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2006] EWCA Civ 1601, [2007] 1 All ER (Comm) 667, [2007] 1 Lloyd’s Rep 555, [2006] 11 WLUK 669, [2007] 2 CLC 223........................................................................6.35 AP Møller-Maersk A/S (t/a Maersk Line) v Sonaec Villas Cen Sad Fadoul [2010] EWHC 355 (Cmm), [2010] 2 All ER (Comm) 1159, [2011] 1 Lloyd’s Rep 1, [2010] 2 WLUK 787, [2012] 1 CLC 798, [2010] IL Pr 32, [2010] Bus LR D97...................................................................... 1.19, 1.21, 2.26, 2.39, 3.3 Aegean Sea, The see Aegean Sea Traders Corpn v Repsol Petroleo SA (The Aegean Sea) Aegean Sea Traders Corpn v Repsol Petroleo SA (The Aegean Sea) [1998] 2 Lloyd’s Rep 39, [1998] 4 WLUK 150, [1998] CLC 1090......................... 2.16, 2.17, 4.28 Agrosin Pty Ltd v Highway Shipping Co Ltd (The Mata K) [1998] 2 Lloyd’s Rep 614, [1998] 5 WLUK 440, [1998] CLC 1300...................................... 6.6, 6.11, 6.14 Air Transworld v Bombardier Inc [2012] 1 Lloyd’s Rep 349.....................................6.36, 6.38 Albazero, The see Owners of Cargo Laden on Board the Albacruz v Owners of the Albazero Alfred C Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11, [1973] 6 WLUK 89, (1973) 117 SJ 649..........................................................6.34, 6.35, 6.38, 6.40 Alfred C Toepfer v Cremer [1975] 2 Lloyd’s Rep 118, [1975] 3 WLUK 59, (1975) 119 SJ 506....................................................................................................9.37 Al Hofuf, The see Scandinavian Trading Co A/B v Zodiac Petroleum SA (The Al Hofuf) Aliakmon, The see Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) Aluminium Industrie Vaassen BV v Romalpa Alumunium [1976] 1 WLR 676, [1976] 2 All ER 552, [1976] 1 Lloyd’s Rep 443, [1976] 1 WLUK 751, (1976) 120 SJ 95......................................................................................................5.15, 5.16 American Accord, The see United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord) Anonima Petroli Italiana SpA & Neste Oy v Marlucidez Armadora SA (The Filiatra Legacy) [1991] 2 Lloyd’s Rep 337, [1991] 3 WLUK 405......................5.18 Antares (Nos 1 & 2), The see Kenya Rlys v Antares Co Pte Ltd (The Antares) (No 1) Aramis, The [1987] 2 Lloyd’s Rep 58, [1987] 2 WLUK 143; revs’d [1989] 1 Lloyd’s Rep 213, [1988] 11 WLUK 216...............................................................4.35 Arcos Ltd v EA Ronaasen & Son [1933] AC 470, (1933) 45 Ll L Rep 33, [1933] 2 WLUK 3................................................................................................................9.15, 9.17 Arctic Trader, The see Trade Star Line Corpn v Mitsui & Co Ltd (The Arctic Trader) Ardennes, The see Owners of Cargo Lately Laden on Board the Ardennes v Owners of the Ardennes (The Ardennes) Armory v Delamirie (1722) 1 Str 505, 93 ER 664, [1721] 1 WLUK 217.................5.16

xi



Table of Cases

para Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339, [1990] 3 WLR 810, [1990] 3 All ER 481, [1991] 1 Lloyd’s Rep 95, 1990 SLT 891, 1991 SCLR 139, [1990] 10 WLUK 216, [1990] BCC 925, [1991] BCLC 28, (1990) 134 SJ 1337..................................................................................................5.16 Arnhold Karberg & Co v Blythe Green Jourdain & Co [1915] 2 KB 379, [1915] 3 WLUK 77; aff’d [1916] 1 KB 495, [1915] 12 WLUK 44............................1.9, 4.8, 5.19 Athanasia Cominos & Georges Chr Lemos, The [1990] 1 Lloyd’s Rep 277, [1979] 12 WLUK 212.............................................................................................1.19, 1.20 Atlas, The see Noble Resources Ltd v Cavalier Shipping Corpn (The Atlas) B Bain v Field & Co Fruit Merchants Ltd (1920) 3 Ll L Rep 26, [1920] 4 WLUK 4 1.23 Ballenita, The see ERG Petroli SpA v Vitol SA (The Ballenita & The BP Energy) Baltic Strait, The see Sevylor Shipping & Trading Corpn v Altfadul Co for Foods, Fruits & Livestock (The Baltic Strait) Bangladesh Chemical Industries Corpn v Henry Stephens Shipping Co & TexBilan Shipping Co (The SLS Everest) [1981] 2 Lloyd’s Rep 389, [1981] 4 WLUK 78, [1981] Com LR 176.........................................................................8.13, 8.17 Bangladesh Export Import Co Ltd v Sucden Kerry SA [1995] 2 Lloyd’s Rep 1, [1994] 10 WLUK 126.............................................................................................1.9 Bank Melli Iran v Barclays Bank (Dominion Colonial & Overseas) [1951] 2 Lloyd’s Rep 367, [1951] 2 TLR 1057, [1951] 10 WLUK 93..............................5.5 Barclays Bank v C & E Comrs [1963] 1 Lloyd’s Rep 81, [1963] 1 WLUK 911.......2.63 Baumwoll Manufaktur von Carl Scheibler v Furness [1893] AC 8, [1892] 11 WLUK 41...........................................................................................................8.21 Bayoil SA v Seawind Tankers Corpn (The Leonidas) [2001] 1 All ER (Comm) 392, [2001] 1 Lloyd’s Rep 533, [2000] 11 WLUK 659, [2001] CLC 1800.......1.36 Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep 440, [1983] 11  WLUK 205............................................................................................................... 7.9, 7.13, 9.27, 9.43 Berge Sisar, The see Borealis AB (formerly Borealis Petrokemi AB & Statoil Petrokemi AB) v Stargas Ltd (The Berge Sisar) Berkshire, The [1974] 1 Lloyd’s Rep 185, [1973] 11 WLUK 6..................................8.22 Biddell Bros v E Clemens Horst Co [1911] 1 KB 934, [1911] 3 WLUK 81 revs’d [1912] AC 18, [1911] 11 WLUK 10..............................................................1.9, 5.18, 9.19 Bominflot Bunkergesellschaft fur Mineraloele mbH & Co KG v Petroplus Marketing AG (The Mercini Lady) [2011] 1 Lloyd’s Rep 442, [2010] 10 WLUK 421, [2010] 2 CLC 637........................................................................6.34, 6.35, 6.38, 6.40 Bominflot Bunkersgesellschaft fur Mineralole mbH & Co v Petroplus Marketing AG (The Mercini Lady) (No 2) [2012] EWHC 3009 (Comm), [2013] 1 All ER (Comm) 610, [2013] 1 Lloyd’s Rep 360, [2012] 10 WLUK 888, [2013] CLC 39.............................................................................4.7 Bond Worth Ltd, Re [1980] Ch 228, [1979] 3 WLR 629, [1979] 3 All ER 919, [1979] 2 WLUK 77, (1979) 123 SJ 216................................................................5.16 Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25, [1979] 3 WLR 672, [1979] 3 All ER 961, [1980] 1 Lloyd’s Rep 160, [1979] 7 WLUK 65, (1979) 123 SJ 688.............................................................................5.16

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Table of Cases

para Borealis AB (formerly Borealis Petrokemi AB & Statoil Petrokemi AB) v Stargas Ltd (The Berge Sisar) [2001] UKHL 17, [2002] 2 AC 205, [2001] 2 WLR 1118, [2001] 2 All ER 193, [2001] 1 All ER (Comm) 673, [2001] 1 Lloyd’s Rep 663, [2001] 3 WLUK 638, [2001] CLC 1084, (2001) 98 (20) LSG 43, (2001) 145 SJLB 93.........................................................................2.8 Borrowman Phillips & Co v Free & Hollis (1878) 4 QBD 500, [1878] 11 WLUK 103.........................................................................................................9.18 Boukadora Maritime Corpn v Marocaine de l’Industrie et du Raffinage SA (The Boukadora) [1989] 1 Lloyd’s Rep 393, [1988] 10 WLUK 153.......................... 6.6, 6.28 Boukadoura, The see Boukadora Maritime Corpn v Marocaine de l’Industrie et du Raffinage SA (The Boukadora) Bowes v Shand (1877) 2 App Cas 455, [1877] 6 WLUK 35.............................. 2.28, 4.13, 9.5 Brandt v Liverpool Brazil & River Plate Steam Navigation Co Ltd [1924] 1 KB 575, [1923] All ER Rep 656, (1923–24) 17 Ll L Rep 142, [1923] 11 WLUK 70........................................................................................................... 4.32, 6.4 Brefka & Hehnke GmbH & Co KG v Navire Shipping Co Ltd (The Saga Explorer) [2012] EWHC 3124 (Comm), [2013] 1 Lloyd’s Rep 401, [2012] 11 WLUK 182.........................................................................................................6.4 British Imex Industries v Midland Bank Ltd [1958] 1 QB 542, [1958] 2 WLR 103, [1958] 1 All ER 264, [1957] 2 Lloyd’s Rep 591, [1957] 12 WLUK 105, (1958) 102 SJ 69..........................................................................6.24, 6.29 Browne v Hare (1858) 3 Hurl & N 484, [1858] 1 WLUK 33....................................5.18 Browne v Hare (1859) 4 Hurl & N 822, 157 ER 561, [1858] 1 WLUK 33.............5.18 Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621, [1957] 3 WLR 403, [1957] 2 All ER 844, [1957] 2 Lloyd’s Rep 1, [1958] 7 WLUK 7, (1957) 101 SJ 610...............................................................................6.28 Bunge Corpn v Tradax Export SA [1981] 1 WLR 711, [1981] 2 All ER 540, [1981] 2 Lloyd’s Rep 1, [1981] 2 WLUK 275, (1981) 125 SJ 373..................... 9.1, 9.13 Burstall & Co v Grimsdale & Sons (1906) 11 Com Cas 280.....................................7.18 C C Groom Ltd v Barber [1915] 1 KB 316, [1914] 11 WLUK 60................................4.5 CEP Interagra SA v Select Energy Trading GmbH (The Jambur) (unreported, 14 November 1990)................................................................................................4.10 CP Henderson & Co v The Comptoir d’Escompte de Paris (1873– 74) LR 5 PC 253, [1873] 7 WLUK 51, (1874) 2 Asp 98, (1874) 21 WR 873, (1874) 42 LJPC 60, (1874) 29 LT 192.......................................................... 2.40, 3.5, 3.17 Canadian & Dominion Sugar Co Ltd v Canadian National (West Indies) Steamships Co Ltd [1947] AC 46, (1947) 80 Ll L Rep 13, 62 TLR 666, [1946] 10 WLUK 43, [1947] LJR 385................................................................... 6.6, 6.11 Captain Gregos, The see Cia Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) (No 2) Caresse Navigation Ltd v Zurich Assurances Maroc and Others (The Channel Ranger) [2015] 1 Lloyd’s Rep 256.........................................................................8.15 Carewins v Bright Future (2008) 743 LMLN 3 (HCt, Hong Kong).........................2.42 Cargill International SA v Bangladesh Sugar & Food Industries Corpn [1998] 1 WLR 461, [1998] 2 All ER 406, [1997] 11 WLUK 332, [1998] CLC 399, (1998) 95 (3) LSG 25, (1998) 142 SJLB 14..........................................................4.10 Carlos Federspeil & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240.5.10

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para Cehave NV v Bremer Handels GmbH (The Hansa Nord) [1976] QB 44, [1975] 3 WLR 447, [1975] 3 All ER 739, [1975] 2 Lloyd’s Rep 445, [1975] 7 WLUK 84, (1975) 119 SJ 768.............................................................................9.11 Ceval Alimentos SA v Agrimpex Trading Co Ltd (The Northern Progress) No 2) [1996] 2 Lloyd’s Rep 319, [1996] 4 WLUK 145, [1996]  CLC 1529........................................................................................................1.35, 1.37, 7.31 Channel Ranger, The see Caresse Navigation Ltd v Zurich Assurances Maroc and Others (The Channel Ranger) Chitral, The see International Air & Sea Cargo GmbH v Owners of the Chitral (The Chitral) Cia Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) (No 2) [1990] 2 Lloyd’s Rep 395, [1990] 7 WLUK 136..................................... 4.5, 4.35 Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427, [1988] 4 WLUK 111...............................................................................1.34, 1.35 Clemens Horst & Co v Biddell Bros see Biddell Bros v E Clemens Horst Co Clough Mill Ltd v Martin [1985] 1 WLR 111, [1984] 3 All ER 982, [1984] 11 WLUK 133, (1985) 82 LSG 1075, (1985) 82 LSG 116, (1984) 128 SJ 850.................................................................................................................5.16 Colin & Shields v W Weddel & Co Ltd [1952] 2 All ER 337, [1952] 2 Lloyd’s Rep 9, [1952] 2 TLR 185, [1952] 6 WLUK 81, [1952] WN 420, (1952) 96 SJ 547................................................................................................................... 2.46, 7.7 Compania Naviera Vascongada v Churchill & Sim [1906] 1 KB 237, [1905] 11 WLUK 97.............................................................................................4.7, 6.6, 6.28, 6.30 Compaq Computer Ltd v Abercorn Group Ltd [1991] 5 WLUK 117, [1991] BCC 484, [1993] BCLC 603......................................................................5.15, 5.16 Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis de Ridder Limitada (The Julia) [1949] AC 293, [1949] 1 All ER 269, (1948–49) 82 Ll L Rep 270, 65 TLR 126, [1949] 1 WLUK 293, [1949] LJR 513, (1949) 93 SJ 101.................................................................................................... 4.3, 4.8, 5.19, 7.34 Concordia Trading BV v Richco International Ltd [1991] 1 Lloyd’s Rep 475, [1990] 8 WLUK 6....................................................................................................5.18 Congimex Companhia Geral de Comercio Importadora e Exportadora Sarl v Tradax Export SA [1983] 1 Lloyd’s Rep 250, [1982] 11 WLUK 152..............1.9 Connolly Shaw Ltd v A/S Det Nordenfjeldske D/S (1934) 49 Ll L Rep 183, [1934] 5 WLUK 28.................................................................................................7.16, 7.19 Conoco (UK) v Limai Maritime Co (The Sirina) [1988] 2 Lloyd’s Rep 613, [1988] 3 WLUK 298...............................................................................................6.6 Contigroup Companies Ltd v Glencore AG [2004] EWHC 2750 (Comm), [2005] 1 Lloyd’s Rep 241, [2004] 11 WLUK 685................................................4.10 Covas (Stamaty) v Bingham (John) & Bingham (William) (1853) 2 El & Bl 836, 118 ER 980, [1853] 11 WLUK 79........................................................................8.32 D Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] EWCA Civ 451, [2003] 1 All ER (Comm) 801, [2003] 2 Lloyd’s Rep 1, [2003] 4 WLUK 116, [2003] 1 CLC 1092................. 4.33, 7.5, 7.19, 7.21 Dalmare SpA v Union Maritime Ltd [2012] EWHC 3537 (Comm), [2013] 2 All ER 870, [2013] 2 All ER (Comm) 70, [2013] Bus LR 810, [2013] 1 Lloyd’s Rep 509, [2012] 12 WLUK 439, [2013] 1 CLC 59.............................................6.38

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para Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68, [1995] 3 All ER 895, [1994] 6 WLUK 337, [1994] CLC 691, 69 BLR 1, (1995) 11 Const LJ 36, (1994) 91 (37) LSG 49, (1994) 138 SJLB 161.............1.20 Daval Aciers D’Usinor et de Sacilor v Armare Srl )The Nerano) [1996] 1 Lloyd’s Rep 1, [1995] 2 WLUK 254......................................................................8.15, 8.18 David Agmashenebeli, The see Owners of Cargo Lately Laden on Board the David Agmashenebeli v Owners of the David Agmashenebeli Delfini, The see Enichem Anic SpA v Ampelos Shipping Co Ltd (The Delfini) [1990] 1 Lloyd’s Rep 252, [1989] 7 WLUK 386..................................................2.25 Dera Commercial Estate v Derva Inc (The Sur) [2018] EWHC 1673 (Comm), [2019] 1 All ER 1147, [2019] 1 All ER (Comm) 448, [2018] Bus LR 2105, [2019] 1 Lloyd’s Rep 57, [2018] 7 WLUK 327, [2018] 2 CLC 230...................2.19, 4.33, 7.5, 7.19, 9.1 Derry v Peek (1889) 14 App Cas 337, (1889) 5 TLR 625, [1889] 7 WLUK 3.........6.40, 6.41 Devon, The see Fal Oil Co Ltd v Petronas Trading Corpn Sdn Bhd (The Devon) Diamond Alkali Export Corpn v Bourgeois [1921] 3 KB 443, (1921) 8 Ll L Rep 282, [1921] 7 WLUK 7...........................................................................................3.13 Dolphina, The [2011] SGHC 273, [2012] 1 Lloyd’s Rep 304, [2011] 12 WLUK 857......................................................................................2.17, 2.19, 2.25, 8.14 E E Clemens Horst Co v Biddell Bros see Biddell Bros v E Clemens Horst Co ERG Petroli SpA v Vitol SA (The Ballenita & The BP Energy) [1992] 2 Lloyd’s Rep 455, [1992] 4 WLUK 39................................................................................. 1.7, 4.10 ERG Raffinerie Mediterranee SpA v Chevron USA Inc (t/a Chevron Texaco Global Trading) (The Luxmar) [2006] EWHC 1322 (Comm), [2006] 2 All ER (Comm) 913, [2006] 2 Lloyd’s Rep 543, [2006] 6 WLUK 138; aff’d [2007] EWCA Civ 494, [2007] 2 All ER (Comm) 548, [2007] 2 Lloyd’s Rep 542, [2007] 5 WLUK 523, [2007] 1 CLC 807...................................................... 4.13, 9.4 East West v DKBS 1912 [2003] EWCA Civ 83, [2003] QB 1509, [2003] 3 WLR 916, [2003] 2 All ER 700, [2003] 1 All ER (Comm) 524, [2003] 1 Lloyd’s Rep 239, [2003] 2 WLUK 368, [2003] 1 CLC 797, (2003) 100 (12) LSG 31.............................................................................................2.8, 2.19, 2.24, 2.55 Eastwood & Holt v Studer (1926) 31 Com Cas 251...................................................5.20 Euro-Asian Oil SA (formerly Euro-Asia Oil AG) v Credit Suisse AG [2018] EWCA Civ 1720, [2019] 1 AlL ER (Comm) 706, [2019] 1 Lloyd’s Rep 444, [2018] 7 WLUK 586.................................................................9.32 Elafi, The see Karlshamns Oljebriker A/B v Eastport Navigation Corpn (The Elaf) El Amria, The & El Minia [1982] 2 Lloyd’s Rep 28, [1982] 3 WLUK 339, [1982] Com LR 121, (1982) 126 SJ 411........................................................................... 1.23, 7.5 Elder Dempster Lines v Zaki Ishag (The Lycaon) [1983] 2 Lloyd’s Rep 548, [1983] 5 WLUK 84......................................................................................  2.55, 2.57, 5.19 El Greco (Australia) v Mediterranean Shipping Co SA [2004] FCAFC 202, [2004] 2 Lloyd’s Rep 537, [2004] 8 WLUK 95....................................................6.6 Elli 2, The see Ilyssia Compania Naviera SA v Ahmed Abdul-Qawi Bamaodah (The Elli 2) Emmanuel Colocotronis (No 2), The see Astro Valiente Compania Naviera SA v Pakistan Ministry of Food & Agriculture (The Emmannuel Coloctronis) [1982] 1 Lloyd’s Rep 286, [1981] 10 WLUK 214............... 8.15, 8.16, 8.18

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para Empresa Exportadora de Azucar (CUBAZUCAR) v Industria Azucarera Nacional SA (The Playa Larha & Marble Islands) [1983] 2 Lloyd’s Rep 171, [1982] 10 WLUK 140, [1983] Com LR 58.........................................2.58, 7.31, 9.27 Enichem Anic SpA v Ampelos Shipping Co Ltd (The Delfini) Epaphus, The see Eurico SpA v Philipp Bros (The Epaphus) [1986] 2 Lloyd’s Rep 387, [1986] 5 WLUK 176...............................................................................7.32 Epsilon Rosa, The see Welex AG v Rosa Maritime Ltd (The Epsilon Rosa) (No 2) Erin Schulte, The see Standard Chartered Bank v Dorchester LNG (2) Ltd (The Erin Schulte) Esteve Trading Corpn v Agropec International (The Golden Rio) [1990] 2 Lloyd’s Rep 273, [1990] 3 WLUK 268.................................................................4.5 Eurico SpA v Philipp Bros (The Epaphus) [1986] 2 Lloyd’s Rep 387, [1986] 5 WLUK 176...........................................................................................................7.32 Eurus, The see Total Transport Corpn v Arcadia Petroleum Ltd (The Eurus) Evans & Reid v Cournouaille (1921) 8 Ll L Rep 76....................................................2.19 Extrudakerb (Maltby Engineering) Ltd v White Mountain Quarries Ltd [1996] NI 567, [1996] 4 WLUK 163, [1996] CLC 1747....................................1.35 F FE Napier v Dexters Ltd (1926) 26 Ll L Rep 62, [1926] 11 WLUK 4.....................5.20 Fal Oil Co Ltd v Petronas Trading Corpn Sdn Bhd (The Devon) [2004] EWCA Civ 822, [2004] 2 All ER (Comm) 537, [2004] 2 Lloyd’s Rep 282, [2004] 7 WLUK 148, [2004] 2 CLC 1062...................................................7.1 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1978] 1 Lloyd’s Rep 581, [1978] 2 WLUK 191..................................................8.17 Fetim BV v Oceanspeed Shipping Ltd (The Flecha) [1999] 1 Lloyd’s Rep 612, [1997] 9 WLUK 110...............................................................................................8.22 Filiatra Legacy, The see Anonima Petroli Italiana SpA & Neste Oy v Marlucidez Armadora SA (The Filiatra Legacy) Finmoon v Baltic Reefers Management Ltd [2012] EWHC 920 (Comm), [2012] 2 Lloyd’s Rep 388, [2012] 4 WLUK 238, [2012] 1 CLC 813.............................2.26 Finska Cellulosaforeningen (Finnish Cellulose Union) v Westfield Paper Co Ltd [1940] 4 All ER 473, (1940) 68 Ll L Rep 75, [1940] 11 WLUK 35..................4.18, 7.10, 7.18, 8.32 Flecha, The see Fetim BV v Oceanspeed Shipping Ltd (The Flecha) Foskett v McKeown [2001] 1 AC 102, [2000] 2 WLR 1299, [2000] 3 All ER 97, [2000] 5 WLUK 521, [2000] Lloyd’s Rep IR 627, [2000] WTLR 667, (1999–2000) 2 ITELR 711, (2000) 97 (23) LSG 44...........................................5.16 Francis Jenkyns v William Brown, Joseph Shipley, Samuel Nicholson (1849) 14 QB 496, 117 ER 193, [1849] 12 WLUK 118.................................................5.18 Future Express, The [1992] 2 Lloyd’s Rep 79, [1992] 2 WLUK 74.......................... 2.8, 2.63 G Gabarron v Kreeft (1874–75) LR 10 Ex 274, [1875] 7 WLUK 43...........................5.14 Gabbiano, The [1940] P 166, [1940] 5 WLUK 11.......................................................4.8 Galatia, The see M Golodetz & Co Inc v Czarnikow-Rionda Co Inc (The Galatia) Garbis Maritime Corpn v Philippine National Oil Co (The Garbis) [1982] 2 Lloyd’s Rep 283, [1982] 1 WLUK 621.................................................................8.16 Garbis, The see Garbis Maritime Corpn v Philippine National Oil Co (The Garbis)

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para Gatoil International Inc v Tradax Petroleum Ltd (The Rio Sun) [1985] 1 Lloyd’s Rep 350, [1984] 7 WLUK 320......................................................................1.10, 4.14, 4.18 General Trading Co & Van Stolck’s Commissiehandel (1911) 16 Com Cas 95.................................................................................................................9.7, 9.16, 9.23 Gill & Duffus v Berger & Co Inc [1984] AC 382, [1984] 2 WLR 95, [1984] 1 All ER 438, [1984] 1 Lloyd’s Rep 227, [1983] 12 WLUK 177, (1984) 81 LSG 429, (1984) 128 SJ 47............................................................6.38, 9.27, 9.28, 9.38 Gill & Duffus SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep 67, [1994] 2 WLUK 184...........................................................................................................1.37 Ginzberg v Barrow Haematite Steel Co Ltd & McKellar [1966] 1 Lloyd’s Rep 343, [1966] 1 WLUK 1043, 116 NLJ 752............................................................5.20 Giovanna, The see Gulf Interstate Oil Co v ANT Trade & Transport Ltd of Malta (The Giovanna) Glencore Energy (UK) Ltd v Sonol Israel Ltd [2011] EWHC 2756 (Comm), [2012] 1 All ER (Comm) 101, [2011] 2 Lloyd’s Rep 697, [2011] 10 WLUK 702.........................................................................................................1.30, 1.37 Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce (The Lorico) [1997] 4 All ER 514, [1997] 2 Lloyd’s Rep 386, [1997] 6 WLUK 418, [1997] CLC 1274...............................................................9.37 Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep 135, [1995] 11 WLUK 116, [1996] 5 Bank LR 1, [1996] CLC 111, [1998] Masons CLR Rep 78..............................................................................................................7.13 Glencore International AG v MSC Mediterranean Shipping Co SA [2017] EWCA Civ 365, [2017] 2 All ER (Comm) 881, [2018] Bus LR 1, [2017] 2 Lloyd’s Rep 186, [2017] 5 WLUK 547, [2017] 2 CLC 1........... 2.25, 2.47, 3.14 Glencore International AG v Metro Trading Inc (No 2) [2001] 1 All ER (Comm) 103, [2001] 1 Lloyd’s Rep 284, [2000] 10 WLUK 344, [2001] CLC 1732.....................................................................................................5.16 Glynn, Mills, Currie & Co v East & West India Dock Co (1882) 7 App Cas 591, [1882] 8 WLUK 4....................................................................................................2.68 Glynn v Margetson & Co [1893] AC 351, [1893] 5 WLUK 1................ 7.16, 7.17, 7.18, 7.19 Goldcorp Exchange Ltd (in receivership), Re [1995] 1 AC 74, [1994] 3 WLR 199, [1994] 2 All ER 806, [1994] 5 WLUK 297, [1994] 2 BCLC 578, [1994] CLC 591, (1994) 13 Tr LR 434, (1994) 91 (24) LSG 46, (1994) 144 NLJ 792, (1994) 138 SJLB 127..................................5.8 Golden Rio, The see Esteve Trading Corpn v Agropec International (The Golden Rio) Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12, [2007] 2 AC 353, [2007] 2 WLR 691, [2007] 3 All ER 1, [2007] 2 All ER (Comm) 97, [2007] Bus LR 997, [2007] 2 Lloyd’s Rep 164, [2007] 3 WLUK 722, [2007] 1 CLC 352, (2007) 157 NLJ 518, (2007) 151 SJLB 468...........................................................................................................4.41 Golden Victory, The see Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) Goodbody & Co and Balfour Williamson & Co, arbitration 4 Com Cas 119 (1903)........................................................................................................................8.33 Graanhandel T Vink BV v European Grain & Shipping Ltd [1989] 2 Lloyd’s Rep 531, [1988] 11 WLUK 66...............................................................................9.27 Grant v Norway (1851) 20 LJCP 93, 138 ER 263, (18510 10 CB 665, [1851] 2 WLUK 78.........................................................................................................6.4, 6.5, 7.21

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para Great Eastern Shipping Co Ltd v Far East Chartering Ltd (The Jag Ravi) [2012] EWCA Civ 180, [2012] 2 All ER (Comm) 707, [2012] 1 Lloyd’s Rep 637, [2012] 3 WLUK 270, [2012] 1 CLC 427......................................................2.19, 2.22 Guaranty Trust Co of New York v Hannay & Co [1918] 2 KB 623, [1918] 5 WLUK 8................................................................................................................2.62 Gulf Interstate Oil Co v ANT Trade & Transport Ltd of Malta (The Giovanna) [1999] 1 Lloyd’s Rep 867, [1998] 12 WLUK 365, [1999] CLC 554.......................................................................................................2.13 H Habas Sinai Ve Tibbi Gazlar Isthisal Edustri AS v Sometal SAL [2010] EWHC 29 (Comm), [2010] 1 All ER (Comm) 1143, [2010] Bus LR 880, [2010] 1 Lloyd’s Rep 661, [2010] 1 WLUK 263, [2012] 1 CLC 448, (2010) 160 NLJ 145...........................................................................1.34 Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145, [1854] 2 WLUK 132................9.33 Hain Steamship Co v Tate & Lyle Ltd [1936] 2 All ER 597, (1936) 55 Ll L Rep 159, (1936) 52 TLR 617, [1936] 6 WLUK 7, (1936) 41 Com Cas 250, [1936] WN 210........................................................................................................ 7.5, 8.13 Hamburg Star, The [1994] 1 Lloyd’s Rep 399, [1993] 10 WLUK 344......................4.36 Hamilton & Co v Mackie & Sons (1889) 5 TLR 677..................................................8.18 Hansa Nord, The see Cehave NV v Bremer Handels GmbH (The Hansa Nord) Hansson v Hamel & Horley [1922] 2 AC 36, (1922) 10 Ll L Rep 507, [1922] 3 WLUK 102....................................................................................... 7.13, 7.15, 7.26, 7.27 Happy Ranger, The see Parsons Corpn v CV Scheepvaartonderneming Happy Ranger Hector, The see Sunrise Maritime Inc v Uvisco Ltd (The Hector) Heidberg, The see Partenreederei M/S Heidberg v Grosvenor Grain & Feed Co Ltd (The Heidberg) (No 2) [1994] 2 Lloyd’s Rep 287, [1994] 3 WLUK 299...........................................................................................................1.37, 8.17 Heinrich Hanno & Co BV v Fairlight Shipping Co (The Kostas K) [1985] 1 Lloyd’s Rep 231, [1984] 11 WLUK 206...............................................................8.13 Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485, [1984] 2 All ER 152, [1984] 2 Lloyd’s Rep 422, [1983] 9 WLUK 66, (1984) 81 LSG 585, (1984) 128 SJ 220.........................................5.16 Henrik Sif, The see Pacol Trade Lines Ltd (The Henrik Sif) Herroe, The & Askoe, The see Rederi AB Gustav Erikson v Dr Fawzi Ahmed Abou Ismail (The Herroe & The Askoe) Heyman v Darwins Ltd [1942] AC 356, [1942] 1 All ER 337, (1942) 72 Ll L Rep 65, [1942] 2 WLUK 19...............................................................................9.1 Hibbert v Carter (1787) 1 Term Rep 745, 99 ER 1355, [1787] 1 WLUK 24..........5.17 Hindley & Co Ltd v East Indian Produce Co Ltd [1973] 2 Lloyd’s Rep 515, [1973] 6 WLUK 22................................................................................................. 1.9, 4.5 Hispanica de Petroles SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos NL), (No 2) [1987] 2 Lloyd’s Rep 321, [1987] 7 WLUK 89...............1.20 Holland Colombo Trading Society Ltd v Segu Mohammed Khaja Alawdeen (Segu Mohamed Khaja) [1954] 2 Lloyd’s Rep 45, [1954] 7 WLUK 64............ 1.9, 7.29 Homburg Houtimport BV v Agrosin Private Ltd (Starsin, The) [2003] UKHL 12, [2004] 1 AC 715, [2003] 2 WLR 711, [2003] 2 All ER 785, [2003] 1 All ER (Comm) 625, [2003] 1 Lloyd’s Rep 571, [2003] 3 WLUK 376, [2003] 1 CLC 921, 2003 AMC 913, (2003) 100 (19) LSG 13..8.22

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para Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (The Hongkong Fir) [1962[ 2 QB 26, [1962] 2 WLR 474, [1962[ 1 All ER 474, [1961] 2 Lloyd’s Rep 478, [1961] 12 WLUK 95, (1961) 106 SJ 35..................................9.1 Houlder Bros & Co Ltd v Comrs of Public Works [1908] AC 276, [1908] 4 WLUK 6................................................................................................................ 4.8, 4.18 Huilerie L’Abeille v Societe des Huileries du Niger (The Kastellon) [1978] 2 Lloyd’s Rep 203, [1978] 1 WLUK 780.................................................................9.33 I Ilyssia Compania Naviera SA v Ahmed Abdul-Qawi Bamaodah (The Elli 2) [1985] 1 Lloyd’s Rep 107, [1984] 11 WLUK 65..................................................4.34 Indian Oil Corpn Ltd v Greenstone Shipping Co SA (Panama) (The Ypatianna) [1988] QB 345, [1987] 3 WLR 869, [1987] 3 All ER 893, [1987] 2 Lloyd’s Rep 286, [1987] 3 WLUK 199, [1987] 2 FTLR 95, (1985) LSG 2768, (1987) 131 SJ 1121..................................................................................................5.16 Indian Oil Corpn Ltd v Vanol Inc [1991] 2 Lloyd’s Rep 634, [1991] 3 WLR 403; rev’sd [1992] 2 Lloyd’s Rep 563, [1992] 6 WLUK 338.........................................1.36 Indian Reliance, The see India Steamship Co Ltd v Louis Dreyfus Sugar Ltd (The Indian Reliance) India Steamship Co Ltd v Louis Dreyfus Sugar Ltd (The Indian Reliance) [1997] 1 Lloyd’s Rep 52, [1996] 6 WLUK 93, [1997] CLC 11..........................8.15 Ines, The see MB Pyramid Sound NV v Birese Schiffahrts GmbH & Co KG MS Sina (The Ines) (No 2) Inglis v Robertson [1898] AC 616, (1898) 25 R (HL) 70, (1898) 6 SLT 130, [1898] 7 WLUK 42.................................................................................................3.14 Inglis v Stock (1994) 12 QBD 564, [1884] 3 WLUK 87; aff’d (1885) 10 App Cas 263, [1885] 3 WLUK 108....................................................................................... 4.3, 4.5 Intercontinental Export Co (Pty) Ltd v MV Dien Danielsen 1982 (3) SA 534; revs’d 1983 (4) SA 275..............................................................................................8.9 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, [1988] 2 WLR 615, [1988] 1 All ER 348, [1987] 11 WLUK 154, (1988) 7 Tr LR 187, (1988) 85 (9) LSG 45, (1987) 137 NLJ 1159, (1988) 132 SJ 460.................................................................................................................1.34, 1.35 International Air & Sea Cargo GmbH v Owners of the Chitral (The Chitral) [2000] 1 Lloyd’s Rep 529........................................................................................ 2.39, 3.3 Ireland v Livingston (1871–72) LR 5 HL 395, [1872] 4 WLUK 59..........................8.32 Itan 6 V 360 SN, The see PT Putrabali Adyamulia v Societe est Epices (The Itan 6 V 360 SN) J JI MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S) [2005] 1 Lloyd’s Rep 347, [2005] 2 WLUK 380, [2005] 1 CLC 172, 2005 AMC 913.....................................................2.2, 2.4, 2.11, 2.42, 2.43, 2.45, 3.6, 5.17 JJ Cunningham Ltd v Robert A Munro & Co (1922) 28 Com Cas 42.....................4.13 Jag Ravi, The see Great Eastern Shipping Co Ltd v Far East Chartering Ltd (The Jag Ravi) Jalamohan, The see Ngo Chew Hong Edible Oil Pte Ltd v Scindia Steam Navigation Co Ltd (The Jalamohan)

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para James Finlay & Co Ltd v MV Kwik Hoo Tong Handel Maatschappij [1928] 2 KB 604, (1928) 31 Ll L Rep 220, [1928] 6 WLUK 49; aff’d [1929] 1 KB 400, [1928] All ER Rep 110, (1928) 32 Ll L Rep 245, [1928] 12 WLUK 39............................................... 1.7, 9.8, 9.9, 9.26, 9.27, 9.32, 9.33, 9.34, 9.40 Jindal Iron & Steel Co Ltd v Islamic Solidarity Shipping Co (The Jordan II) [2005] Lloyd’s Rep 57, 2005 AMC 1.....................................................................7.29 Johnson v Agnew [1980] AC 367, [1979] 2 WLR 487, [1979] 1 All ER 883, [1979] 3 WLUK 74, (1979) 38 P & CR 424, (1979) 251 EG 1167, (1979) 123 SJ 217.................................................................................................................9.1 Johnson Matthey Bankers Ltd v The State Trading Corpn of India Ltd [1984] 1 Lloyd’s Rep 427, [1983] 12 WLUK 189...............................................................1.29, 1.32 Jones v De Marchant (1916) 28 DLR 561....................................................................5.16 Jordan II, The see Jindal Iron & Steel Co Ltd v Islamic Solidarity Shipping Co (The Jordan II) Joyce v Swann (1864) 17 CB NS 84, 144 ER 34, [1864] 5 WLUK 62......................5.18 Julia, The see Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis de Ridder Limitada (The Julia) Jydsk Andels-Foderstofforretning v Grands Moulins de Paris (1931) 39 Ll L Rep 223, [1931] 3 WLUK 41...................................................................9.12, 9.14, 9.16 K KH Enterprise, The see Owners of Cargo Lately Laden on Board the KH Enterprise v Owners of the Pioneer Container K/S A/S Seateam & Co v Iraq National Oil Co (The Sevonia Team) [1983] 2 Lloyd’s Rep 640, [1983] 6 WLUK 120.................................................................8.17 Kanchenjunga, The see Motor Oil Hellas (Corinth) Refineries SA v Shipping Corpn of India (The Kanchenjunga) Kapetan Markos, The see Hispanica de Petroles SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos NL), (No 2) Kapitan Petko Voivoda, The see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) Karinjee Jivangee & Co v William F Malcolm & Co (1926) 25 Ll L Rep 28, [1926] 4 WLUK 26.................................................................................................4.9 Karlshamns Oljebriker A/B v Eastport Navigation Corpn (The Elaf) [1982] 1 All ER 208, [1981] 2 Lloyd’s Rep 679, [1981] 5 WLUK 157, [1981] Com LR 149...................................................................................................................... 5.9, 5.11 Kastellon, The see Huilerie L’Abeille v Societe des Huileries du Niger (The Kastellon) Kaukomarkkinat O/Y v Elbe Transport-Union GmbH (The Kelo) [1985] 2 Lloyd’s Rep 85, [1984] 10 WLUK 40...................................................................4.34 Kaye v Nu Skin UK Ltd [2009] EWHC 3509 (Ch), [2010] 2 All ER (Comm) 832, [2011] 1 Lloyd’s Rep 40, [2009] 11 WLUK 248.........................................1.34 Keighly, Maxted & Co & Bryant, Durant & Co (No 2), Re (1894) 7 Asp MLC 418...................................................................................................................6.17, 6.18 Kelo, The see Kaukomarkkinat O/Y v Elbe Transport-Union GmbH (The Kelo) Kenya Rlys v Antares Co Pte Ltd (The Antares) (No 1) [1987] 1 Lloyd’s Rep 424, [1987] 1 WLUK 1014..................................................................................... 7.5, 7.21 Keppel Tatlee Bank Ltd v Bandung Shipping Pte Ltd [2003] 1 Lloyd’s Rep 619, [2002] 10 WLUK 818.............................................................................................2.18

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para Kleinjan & Holst NV Rotterdam v Bremer Handels GmbH, Hamburg [1972] 2 Lloyd’s Rep 11, [1972] 4 WLUK 58.............................................................5.12, 9.40, 9.43 Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm), [2011] 1 All ER (Comm) 46, [2010] 2 Lloyd’s Rep 653, [2010] 2 WLUK 5, [2010] 1 CLC 256....................................................................................................1.28 Kostas K, The see Heinrich Hanno & Co BV v Fairlight Shipping Co (The Kostas K) Kriti Palm, The see AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) Kronprinsessan Margareta, The Parana [1921] 1 AC 486, [1920] 12  WLUK 147..................................................................................................... 5.18, 5.19, 5.22 Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439, [1970] 12 WLUK 11............ 3.3, 3.17 Kuwait Petroleum Corpn v I & D Oil Carriers Ltd (The Houda) [1994] 2 Lloyd’s Rep 541, [1994] 7 WLUK 266, [1994] CLC 1037.................................2.55 Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shppers Ltd [1954] 2 QB 459, [1954] 2 WLR 365, [1954] 1 All ER 779, [1954] 1 Lloyd’s Rep 16, [1954] 2 WLUK 1, (1954) 98 SJ 163........................................... 9.17, 9.33, 9.34, 9.36 Kyokuyo Co Ltd v AP Møller-Maersk A/S (t/a Maersk Line) [2018] EWCA Civ 778, [2018] 3 All ER 1009, [2018] 2 All ER (Comm) 503, [2018] Bus LR 1481, [2018] 2 Lloyd’s Rep 59, [2018] 4 WLUK 208, [2018] 1 CLC 715....................................................................................................2.11 L LM Fischel & Co v Spencer (1922) 12 Ll L Rep 36, [1922] 6 WLUK 44................7.29 Law & Bonar Ltd v British American Tobacco Co Ltd [1916] 2 KB 605, [1916] 7 WLUK 42.............................................................................................................. 4.8, 4.20 Leduc & Co v Ward (1888) 20 QBD 475, [1888] 2 WLUK 59.................... 7.4, 7.5, 8.8, 8.13 Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785, [1986] 2 WLR 902, p1986] 2 All ER 145, [1986] 2 Lloyd’s Rep 1, [1986] 4 WLUK 190, (1986) 136 NLJ 415, (1986) 130 SJ 357.............4.36, 5.19, 6.5, 7.21 Leonidas, The see Bayoil SA v Seawind Tankers Corpn (The Leonidas) L’Estrange v F Graucob Ltd [1934] 2 KB 394, [1934] 2 WLUK 22........................1.34 Libau Wood Co v H Smith & Sons Ltd (1930) 37 Ll L Rep 296, [1930] 7 WLUK 82........................................................................ 6.17, 6.23, 6.24, 6.25, 6.26, 8.28 Lickbarrow v Mason (1787) 2 Term Rep 63, 100 ER 35, [1787] 11 WLUK 8; rev’sd (1790) 1 H Bl 357, [1790] 2 WLUK 27; restored (1793) 2 H Bl 211, 126 ER 511, [1793] 1 WLUK 23...........................................................................3.12 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, [1993] 3 WLR 408, [1993] 3 All ER 417, [1993] 7 WLUK 264, 63 BLR 1, 36 Con LR 1, [1993] EG 139 (CS), (1993) 143 NLJ 1152, (1993) 137 SJLB 183...........................................................................................................1.20 Lloyds Bank Ltd v Bank of America National Trust & Savings Association [1938] 2 KB 147, [1938] 2 All ER 63, [1938] 3 WLUK 21................................2.66 London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 11 Asp MLC 571.........................................................................................2.19 London Wine Co (Shippers), Re [1986] 1 WLUK 731, [1986] PCC 121.................5.11 Luxmar, The see ERG Raffinerie Mediterranee SpA v Chevron USA Inc (t/a Chevron Texaco Global Trading) (The Luxmar) Lycaon, The see Elder Dempster Lines v Zaki Ishag (The Lycaon)

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para M M Golodetz & Co Inc v Czarnikow-Rionda Co Inc (The Galatia) [1979] 2 All ER 726, [1979] 2 Lloyd’s Rep 450, [1978] 11 WLUK 128..................... 6.17, 6.24, 6.25, 6.26, 6.29, 7.11, 8.28 MB Pyramid Sound NV v Birese Schiffahrts GmbH & Co KG MS Sina (The Ines) (No 2) [1995] 2 Lloyd’s Rep 144, [1995] 5 WLUK 203, [1995] CLC 886..............................................................................................2.19, 2.22, 8.22 MH Progress Lines SA v Orient Shipping Rotterdam BV [2011] EWH C 3083 (Comm), [2012] 1 All ER (Comm) 1230, [2012] 1 Lloyd’s Rep 222, [2011] 11 WLUK 765, [2012] 1 CLC 26..........................................................................1.36 MVV Environment Devonport Ltd v Nto Shipping GmbH & Co KG (The Nortrader) [2020] EWHC 1371 (Comm), [2020] 6 WLUK 57........................7.4 McEntire v Crossley Bros Ltd [1895] AC 457, [1895] 5 WLUK 24.........................5.16 Manbre Saccharine Co v Corn Products Co [1919] 1 KB 198, [1918] 11 WLUK 29........................................................................................................... 4.5, 4.6 Margarine Union GmbH v Cambay Prince Steamship Co (The Wear Breeze) [1969] 1 QB 219, [1967] 3 WLR 1569, [1967] 3 All ER 775, [1967] 2 Lloyd’s Rep 315, [1967] 7 WLUK 4, (1967) 111 SJ 943.....................................2.46 Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 2 QB 430, [1964] 3 WLR 873, [1964] 3 All ER 333, [1964] 2 Lloyd’s Rep 153, [1964] 6 WLUK 135, (1964) 108 SJ 562..............................................9.16 Marshall Knott & Barker Ltd v Arcos Ltd (1932) 44 Ll L Rep 384, [1932] 12 WLUK 56...........................................................................................................8.33 Mash & Murrell Ltd v Joseph I Emmanuel Ltd [1961] 1 WLR 862, [1961] 1 All ER 485, [1961] 1 Llloyd’s Rep 46, [1961] 1 WLUK 847, (1961) 105 SJ 468...4.7 Mata K, The see Agrosin Pty Ltd v Highway Shipping Co Ltd (The Mata K) Mayhew Foods Ltd v Overseas Containers Ltd [1984] 1 Lloyd’s Rep 317, [1983] 10 WLUK 202, (1983) 133 NLJ 1103..................................................................7.27 Mendala III Transport v Total Transport Corpn (The Wilomi Tanana) [1993] 2 Lloyd’s Rep 41, [1993] 2 WLUK 320...................................................................6.21 Merak, The see TB & S Batchelor & Co Ltd v Owners of the SS Merak (The Merak) Mercini Lady, Re see Bominflot Bunkergesellschaft fur Mineraloele mbH & Co KG v Petroplus Marketing AG (The Mercini Lady) Mercini Lady (No 2), Re see Bominflot Bunkersgesellschaft fur Mineralole mbH & Co v Petroplus Marketing AG (The Mercini Lady) (No 2) Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd [2012] EWHC 1376 (TCC), [2012] 5 WLUK 823, [2012] BLR 364, 142 Con LR 166, [2012] CILL 3193............................................................................1.30 Messrs Ltd v Morrison’s Export Co Ltd [1939] 1 All ER 92, (1938) 62 Ll L Rep 217, [1938] 12 WLUK 35.......................................................................................7.23, 7.24 Metal Scrap Trade Corpn v Kate Shipping Co Ltd (The Gladys No 2) [1994] 2 Lloyd’s Rep 402, [1993] 10 WLUK 230...............................................................1.30 Meyerstein v Barber (1866–67) LR 2 CP 38, [1866] 11 WLUK 152........................2.63 Mirabita v Imperial Ottoman Bank (1878) 3 Ex D 164, [1878] 2 WLUK 66.........5.18 Miramar, The see Miramar Maritime Corpn v Holborn Oil Trading (The Miramar) [1984] AC 676, [1984] 3 WLR 1, [1984] 2 All ER 326, [1984] 2 Lloyd’s Rep 129, [1984] 5 WLUK 253, (1984) 81 LSG 2000, (1984) 128 SJ 414.................................................................................................................8.18

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para Miramar Maritime Corpn v Holborn Oil Trading (The Miramar) [1984] 1 Lloyd’s Rep 142, [1983] 10 WLUK 224 ; aff’d [1984] AC 676, [1984] 3 WLR 1, [1984] 2 All ER 326, [1984] 2 Lloyd’s Rep 129, [1984] 5 WLUK 253, (1984) 81 LSG 2000, (1984) 128 SJ 414.....................................8.15, 8.18 Miramichi, The [1915] P 71, [1914] 11 WLUK 78......................................................5.20 Mitchell v Ede (1840) 11 Ad & El 888..........................................................................2.55, 2.57 Mitsui & Co Ltd v Flota Mercante Grancolombiana SA (The Cuidad de Pasto, The Cuidad de Neiva) [1988] 1 WLR 1145, [1989] 1 All ER 951, [1988] 2 Lloyd’s Rep 208, [1988] 4 WLUK 98...................................................................5.18 Modelboard Ltd v Outer Box Ltd (in liquidation) [1992] 9 WLUK 96, [1992] BCC 945, [1993] BCLC 623......................................................................5.16 Montague L Meyer Ltd v Travaru A/BH Cornelius (1930) 37 Ll L Rep 204, [1930] 6 WLUK 53.................................................................................................7.23 Moralice (London) Ltd v ED & F Man [1955] 2 Lloyd’s Rep 526, [1954] 11 WLUK 93................................................................................................. 9.14, 9.16, 9.17 Moss Steamship Co Ltd v Whinney [1912] AC 254, [1911] 6 WLUK 58...............7.4 Motis Exports v Dampskibsselskabet AF 1912 A/S (No 1) [1999] 1 All ER (Comm) 571, [1999] 1 Lloyd’s Rep 837, [1999] 3 WLUK 14, [1999] CLC 914.......................................................................................................2.19, 2.24 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corpn of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, [1990] 2 WLUK 229......................9.18 N Nai Matteini, The see Navigazione Alta Italia SpA v Svenske Petroleum AB (The Nai Matteini) Naviera Mogor SA v Societe Metallurgique de Normandie (The Nogar Marin) [1988] 1 Lloyd’s Rep 412, [1988] 1 WLUK 772, [1988] FTLR 349.................6.28 Navigas Ltd of Gibraltar v Enron Liquid Fuels Inc [1997] 2 Lloyd’s Rep 759, [1997] 8 WLUK 59.................................................................................................1.35 Navigazione Alta Italia SpA v Svenske Petroleum AB (The Nai Matteini) [1988] 1 Lloyd’s Rep 452, [1987] 11 WLUK 51.....................................................8.13, 8.17, 8.18 Nanfri, The see Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) Nea Tyhi, The [1982] 1 Lloyd’s Rep 606, [1981] 11 WLUK 76, [1982] Com LR 9........................................................................................................................... 6.5, 7.21 Nerano, The see Daval Aciers D’Usinor et de Sacilor v Armare Srl (The Nerano) New Chinese Antimony Co Ltd v Ocean Steamship Co Ltd [1917] 2 KB 664, [1917] 6 WLUK 59.................................................................................................6.6 Ngo Chew Hong Edible Oil Pte Ltd v Scindia Steam Navigation Co Ltd (The Jalamohan) [1988] 1 Lloyd’s Rep 443, [1987] 12 WLUK 271, [1988] 1 FTLR 340..............................................................................................................8.22 Nippon Yusen Kaisha v Ramjiban Serowgee [1938] AC 429, [1938] 2 All ER 285, (1938) 60 Ll L Rep 181, [1938] 3 WLUK 25, [1938] 3 WWR 136....5.20 Noble Resources Ltd v Cavalier Shipping Corpn (The Atlas) [1996] 1 Lloyd’s Rep 642, [1996] 2 WLUK 248, [1996] CLC 1148.............................................. 2.26, 6.6 Nogar Marine, The see Naviera Mogor SA v Societe Metallurgique de Normandie (The Nogar Marin) Northern Progress, The see Ceval Alimentos SA v Agrimpex Trading Co Ltd (The Northern Progress) No 2)

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para Northern Steel & Hardware Co Ltd v John Batt & Co (London) Ltd (1917) 33 TLR 516..............................................................................................................4.21 North Western Bank Ltd v John Poynter Son & Macdonalds [1895] AC 56, (1894) 22 R (HL) 1, (1894) 2 SLT 311, [1894] 11 WLUK 73...........................2.66 Nortrader, The see MVV Environment Devonport Ltd v Nto Shipping GmbH & Co KG (The Nortrader) O OK Petroleum AB v Vitol Energy SA (The Chemical Venture & The Jade) [1995] 2 Lloyd’s Rep 160, [1995] 5 WLUK 88, [1995] CLC 850......................1.35, 1.37 Obestain Inv v National Mineral Development Corpn Ltd (The Sanix Ace) [1987] 1 Lloyd’s Rep 465, [1987] 1 WLUK 965.................................................. 4.5, 4.39 Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53, [1934] 10 WLUK 15............................................................................................... 3.3, 3.7 Ogle v Atkinson (1814) 5 Taunt 759, 128 ER 890, [1814] 11 WLUK 38................5.18 Oinissian Pride, The see Pride Shipping Corpn v Chung Hwa Pulp Corpn (The Oinoussin Pride) Olley v Marlborough Court Ltd [1949] 1 KB 532, [1949] 1 All ER 127, 65 TLR 95, [1948] 12 WLUK 10, 9 ALR 2d 806, [1949] LJR 360, (1949) 93 SJ 40.....................................................................................................................7.5 Olympia Oil & Cake Co Ltd & Produce Brokers Co Ltd [1915] 1 KB 233, [1914] 5 WLUK 60.................................................................................................4.5 Owners of Cargo Laden on Board the Albacruz v Owners of the Albazero [1977] AC 774, [1976] 3 WLR 419, [1976] 3 All ER 129, [1976] 2 Lloyd’s Rep 467, [1976] 7 WLUK 168, (1976) 120 SJ 570..............................................5.18 Owners of Cargo Lately Laden on Board the Ardennes v Owners of the Ardennes (The Ardennes) [1951] 1 KB 55, [1950] 2 All ER 517, (1950) 84 Ll L Rep 340, (1950) 66 TLR (Pt 2) 312, [1950] 7 WLUK 7, (1950) 94 SJ 458................................................................................................................... 7.4, 7.5 Owners of Cargo Lately Laden on Board the David Agmashenebeli v Owners of the David Agmashenebeli [2003] 1 Lloyd’s Rep 92, [2002] 5 WLUK 966, [2003] 1 CLC 714.......................................................................... 6.4, 6.10, 6.11, 6.14 Owners of Cargo Lately Laden on Board the KH Enterprise v Owners of the Pioneer Container [1994] 2 AC 324, [1994] 3 WLR 1, [1994] 2 All ER 250, [1994] 1 Lloyd’s Rep 593, [1994] 3 WLUK 292, [1994] CLC 332, (1994) 91 (18) LSG 37, (1994) 138 SJLB 85.........................................................................7.24 P PS Chellaram & Co Ltd v China Ocean Shipping Co [1989] 1 Lloyd’s Rep 413, [1988] 12 WLUK 74...............................................................................................5.18 PT Putrabali Adyamulia v Societe est Epices (The Itan 6 V 360 SN) [2003] 2 Lloyd’s Rep 700, [2003] 5 WLUK 541..........................................................4.5, 7.10, 7.14 Pacific Molasses Co v Entre Rios Compania Naviera SA [1976] 1 Lloyd’s Rep 8, [1975] 6 WLUK 27.................................................................................................5.14, 8.17 Pacol Trade Lines Ltd (The Henrik Sif) [1982] 1 Lloyd’s Rep 456, [1981] 10 WLUK 82, [1982] Com LR 92, (1982) 126 SJ 312........................................8.20, 8.23 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, [1987] 5 WLUK 221...........................................................................................................1.30

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para Pagnana SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, [1987] 2 Lloyd’s Rep 342, [1987] 6 WLUK 156.................................................................1.36 Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd’s Rep 53, [1969] 11 WLUK 16.................................................. 6.19, 9.16, 9.17, 9.21, 9.36, 9.37, 9.38, 9.39, 9.40, 9.41, 9.42, 9.43 Parchim, The [1918] AC 157, [1917] 11 WLUK 8...................................................... 4.3, 5.18 Parsons Corpn v CV Scheepvaartonderneming Happy Ranger [2002] EWCA Civ 694, [2002] 2 All ER (Comm) 24, [2002] 2 Lloyd’s Rep 357, [2002] 5 WLUK 524, [2003] 1 CLC 122................................................. 1.18, 2.8, 3.3 Peachdart Ltd, Re [1984] Ch 131, [1983] 3 WLR 878, [1983] 3 All ER 204, [1983] 3 WLUK 121, (1983) 1 BVV 98920, (1984) 81 LSG 204, (1983) 127 SJ 839.................................................................................................................5.16 Peter Cremer GmvH v General Carriers SA (The Dona Mari) [1974] 1 WLR 341, [1974] 1 All ER 1, [1973] 2 Lloyd’s Rep 366, [1973] 7 WLUK 28, (1973) 117 SJ 873............................................................2.46, 3.14, 6.6, 6.30 Peter dee Grosse, The (1875) 1 PD 414, (1876) 34 LT 749.......................................6.30 Petroplus Marketing AG v Shell Trading International Ltd (The Ninae) [2009] EWHC 1024 (Comm), [2009] 2 All ER (Comm) 1186, [2009] 2 Lloyd’s Rep 611, [2009] 5 WLUK 298, [2009] 1 CLC 743................................1.30 Peyman v Lanjani [1985] Ch 457, [1985] 2 WLR 154, [1984] 3 All ER 703, [1984] 4 WLUK 106, (1984) 48 P & CR 398, (1985) 82 LSG 43, (1984) 128 SJ 853.................................................................................................................9.37 Photo Production v Securicor [1980] AC 827, [1980] 2 WLR 283, [1980] 1 All ER 556, [1980] 1 Lloyd’s Rep 545, [1980] 2 WLUK 146, (1980) 124 SJ 147........................................................................................ 2.19, 4.33, 7.5, 7.19, 9.1 Playa Larga, The see Empresa Exportadora de Azucar (CUBAZUCAR) v Industria Azucarera Nacional SA (The Playa Larha & Marble Islands) Polenghi v Dried Milk Co Ltd (1904) 10 Com Cas 42...............................................5.1 Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep 388, [1996] 2 WLUK 115, [1996] CLC 1264.................................1.34 President of India v Metcalfe Shipping Co Ltd (The Dunelmia) [1970] 1 QB 289, [1969] 3 WLR 1120, [1969] 3 All ER 1549, [1969] 2 Lloyd’s Rep 476, [1969] 10 WLUK 21, (1969) 113 SJ 792...............................7.1, 8.6, 8.9, 8.10, 8.11, 8.12, 8.24, 8.27 Pride Shipping Corpn v Chung Hwa Pulp Corpn (The Oinoussin Pride) [1991] 1 Lloyd’s Rep 126, [1990] 6 WLUK 325..............................................................2.26 Primetrade AG v Ythan Ltd (The Ythan) [2005] EWHC 2399 (Comm), [2006] 1 All ER 367, [2006] 1 All ER (Comm) 157, [2006] 1 Lloyd’s Rep 457..........2.8 Procter & Gamble Philippine Manufacturing Corpn v Becher [1988] 2 Lloyd’s Rep 21, [1988] 2 WLUK 17, [1988] FTLR 450............3.3, 9.5, 9.8, 9.9, 9.17, 9.18, 9.34 Proodos C, The see Syros Shipping Co SA v Elaghill Trading Co (The Proodos C) Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, [1954] 2 WLR 1005, [1954] 2 All ER 158, [1954] 1 Lloyd’s Rep 321, [1954] 4 WLUK 53, (1954) 98 SJ 354.................................... 1.16, 1.18, 1.20, 1.21, 4.18, 7.4, 8.9 R Rafaela S, The see JI MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S) Rasnoimport V/O v Guthrie & Co Ltd [1966] 1 Lloyd’s Rep 1, [1965] 11 WLUK 39...........................................................................................................6.8

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para Rederi AB Gustav Erikson v Dr Fawzi Ahmed Abou Ismail (The Herroe & The Askoe) [1986] 2 Lloyd’s Rep 281, [1986] 5 WLUK 42..............................6.6 Red Sea, The see Trasimex Holding SA v Addax BV (The Red Sea) Restitution Steamship Co v Sir John Piries & Co (1889) 6 Asp MLC 428..............6.24 Rio Sun, The see Gatoil International Inc v Tradax Petroleum Ltd (The Rio Sun) Rodocanachi v Milburn (1886) 18 QBD 67, [1886] 11 WLUK 75....................... 6.5, 8.6, 8.8, 8.13, 8.26 Roseline, The see Union Industrielle v Petrosul Ross T Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60, (1940) 67 Ll L Rep 147, [1940] 5 WLUK 55.......................................1.9, 4.5, 5.10, 5.12, 5.18, 5.22 Royal Exchange Shipping Co Ltd v WJ Dixon & Co (1886) 12 App Cas 11, [1886] 12 WLUK 24............................................................................................... 7.5, 7.21 S S v A [2016] EWHC 846 (Comm), [2017] 1 All ER (Comm) 121, [2016] 1 Lloyd’s Rep 604, [2016] 4 WLUK 434, [2016] 1 CLC 638................................1.9 SIAT di dal Ferro v Tradax [1978] 2 Lloyd’s Rep 470, [1978] 3 WLUK 92; aff’d [1980] 1 Lloyd’s Rep 53, [1979] 5 WLUK 204............. 2.26, 2.46, 7.31, 8.19, 8.32, 8.33, 8.37, 9.12, 9.13, 9.17, 9.18, 9.21 SLS Everest, The see Bangladesh Chemical Industries Corpn v Henry Stephens Shipping Co & Tex-Bilan Shipping Co (The SLS Everest) Sabah Flour & Feedmills SDN BHD v Comfez Ltd [1988] 2 Lloyd’s Rep 18, [1988] 1 WLUK 908...............................................................................................1.36 Samuel & Co v West Hartlepool Steam Navigation Co (1906) 11 Com Cas 115...8.21 Sanders Bros v Maclean & Co (1883) 11 QBD 327, [1883] 4 WLUK 58.........2.2, 2.67, 2.68 Sanix Ace, The see Obestain Inv v National Mineral Development Corpn Ltd (The Sanix Ace) San Nicholas, The see Pacific Molasses Co v Entre Rios COmpania Naviera SA Santa Clara, The see Vitol SA v Norelf Ltd (The Santa Clara) Saudi Crown, The [1986] 1 Lloyd’s Rep 261, [1985] 12 WLUK 178........................6.5 Scandinavian Trading Co A/B v Zodiac Petroleum SA (The Al Hofuf) [1981] 1 Lloyd’s Rep 81, [1980] 6 WLUK 134...................................................................1.17 Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [2008] UKHL 11, [2008] 2 All ER 768, [2008] 2 All ER (Comm) 369, [2008] Bus LR 583, [2008] 1 Lloyd’s Rep 462, [2008] 2 WLUK 490, [2008] 1 CLC 186, [2008] IL Pr 30, (2008) 158 MLJ 334, (2008) 152 (8)  SJLB 32................................................................................................................1.7, 1.16, 4.2 Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, [1962] 2 WLR 186, [1962] 1 All ER 1, [1961] 2 Lloyd’s Rep 365, [1961] 12 WLUK 26, (1962) 106 SJ 34...................................................................................................................1.20 Sea Calm Shipping Co SA v Chantiers Navals de l’Esterel SA (The Uhenbels) [1986] 2 Lloyd’s Rep 294, [1986] 2 WLUK 162..................................................8.23 Sea Glory Maritime Co v Al Sagr National Insurance Co (The M/V Nancy) [2012] EWHC 874 (Comm), [2013] 2 All ER (Comm) 913, [2014] 1 Lloyd’s Rep 14, [2013] 7 WLUK 500, [2013] 2 CLC 114, [2014] Lloyd’s Rep IR 112, [2013] Bus LR D51...........................................................................2.26 Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd (The Seamaster) [2018] EWHC 1902 (Comm), [2018] Bus LR 1798, [2019] 1 Lloyd’s Rep 101, [2018] 7 WLUK 598, [2018] 2 CLC 385...................................................... 2.8, 2.26

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para Seamaster, The see Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd (The Seamaster) Seven Pioneer, The [2001] 2 Lloyd’s Rep 57, [2001] 2 WLUK 306..........................5.19 Sevonia Team, The see K/S A/S Seateam & Co v Iraq National Oil Co (The Sevonia Team) Sevylor Shipping & Trading Corpn v Altfadul Co for Foods, Fruits & Livestock (The Baltic Strait) [2018] EWHC 629 (Comm), [2018] 2 All ER (Comm) 847, [2018] 2 Lloyd’s Rep 33, [2018] 3 WLUK 581, [2018] 1 CLC 500..........4.39 Sewell v Burdick (The Zoe) (1884) 13 QBD 159, [1884] 4 WLUK 23; revs’d (1884) 10 App Cas 74, [1884] 12 WLUK 25....................................................... 2.2, 4.33 Shackleford, The see Surrey Shipping Co v Compagnie Continentale (France) SA (The Shackleford) Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, [1989] 3 WLUK 215, [1989] 3 CMLR 429, (1990) 140 NLJ 247.....1.35 Sheridan v New Quay Co (1858) 4 CBNS 618, 140 ER 1234, [1858] 7 WLUK 25..............................................................................................................5.19 Shipton, Anderson & Co v John Weston & Co (1922) 10 Ll L Rep 762, [1923] 3 WLUK 206................................................................................ 1.7, 4.23, 5.20, 7.15, 7.18 Shipton, Anderson & Co v Well Bross & Co Ltd (1912) 17 Com Cas 153.............9.15, 9.16 Silver v Ocean Steamship Co Ltd [1930] 1 KB 416, (1929) 35 Ll L Rep 49, [1929] 11 WLUK 24...............................................................................................6.6 Sirina, The see Conoco (UK) v Limai Maritime Co (The Sirina) Skarp, The [1935] P 134, [1935] All ER Rep 560, (1935) 52 Ll L Rep 152, 51 TLR 541, [1935] 6 WLUK 12, 104 LJP 63.....................................................6.30 Skips A/S Nordheim v Syrian Petroleum Co & Petrofina SA (The Varenna) [1984] QB 599, [1984] 2 WLR 156, [1983] 3 All ER 645, [1983] 2 Lloyd’s Rep 592, [1983] 10 WLUK 25......................................................................8.15, 8.16, 8.18 Smart Bros Ltd v Holt [1929] 2 KB 303, [1929] 5 WLUK 35...................................5.16 Smith v South Wales Switchgear Ltd [1978] 1 WLR 165, [1978] 1 All ER 18, 1978 SC (HL) 1, 1978 SLT 21, [1977] 11 WLUK 68, 8 BLR 1, (1978) 122 SJ 61...................................................................................................................1.38 Societe Co-operative Suisse des Cereales et Matieres Fourrageres v La Plata Cereal Co SA (1947) 80 Ll L Rep 530, [1947] 6 WLUK 49..............................1.29 Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s Rep 398, [1996] 1 WLUK 205, [1996] CLC 729...............................................................4.9, 7.9, 9.13, 9.18 Soproma SpA v Marine & Animal By-Products Corpn [1966] 1 Lloyd’s Rep 367, [1966] 2 WLUK 21, 116 NLJ 867................................................................7.29 Sormovskiy 3068, The see Sucre Export SA v Northern River Shipping Ltd (The Sormovskiy 3068) Soules Caf v PT Transap (Indonesia) [1999] 1 Lloyd’s Rep 917, [1998] 7 WLUK 627........................................................................................................... 1.9, 8.32 Spillers Ltd v JW Mitchell Ltd (1929) 33 Ll L Rep 89, [1929] 2 WLUK 27............7.15 Standard Chartered Bank v Dorchester LNG (2) Ltd (The Erin Schulte) [2014] EWCA Civ 1382, [2016] QB 1, [2015] 3 WLR 261, [2015] 2 All ER 395, [2015] 2 All ER (Comm) 362, [2015] 1 Lloyd’s Rep 97, [2014] 10 WLUK 644, [2014] 2 CLC 740.....................................................2.15, 2.16, 2.31, 4.28 State Trading Corpn of India Ltd v M Golodetz & Co Inc Ltd [1988] 2 Lloyd’s Rep 182, [1987] 12 WLUK 190; rev’sd [1989] 2 Lloyd’s Rep 277, [1989] 6 WLUK 50...................................................................................................... 4.33, 7.5, 7.13

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para Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] EWHC 2257 (Comm), [2009] 1 All ER (Comm) 1035, [2008] 2 Lloyd’s Rep 685, [2008] 9 WLUK 477, (2008) 158 NLJ 1377..........................1.30 Steamship Calcutta Co Ltd v Andrew Weir & Co (The Calcutta) [1910] 1 KB 759, [1910] 1 WLUK 47..............................................................................8.11 Stein Forbes & Co v County Tailoring Co (1916) 115 LT 215, [1917] 86 LJKB 448............................................................................................................ 5.1, 5.20 Sterling Hydraulics Ltd v Dichtomatik [2006] EWHC 2004 (QB) [2007] 1 Lloyd’s Rep 8, [2006] 7 WLUK 150......................................................................1.30 Stern Ltd v Vickers Ltd [1923] 1 KB 78, [1922] 10 WLUK 7................................... 3.14, 4.5 Stettin, The (1889) 14 PD 142, [1889] 6 WLUK 42....................................................2.19, 2.22 Stock v Inglis see Inglis v Stock Sucre Export SA v Northern River Shipping Ltd (The Sormovskiy 3068) [1994] 2 Lloyd’s Rep 266, [1994] 4 WLUK 186, [1994] CLC 433.......... 2.19, 2.23, 2.24 Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, [1966] 2 WLR 944, [1966] 2 All ER 61, [1966] 1 Lloyd’s Rep 529, [1966] 3 WLUK 113, (1966) 110 SJ 367.................7.19 Sunrise Maritime Inc v Uvisco Ltd (The Hector) [1998] 2 Lloyd’s Rep 287, [1998] 3 WLUK 301, [1998] CLC 902.................................................................8.22 Sur, The see Dera Commercial Estate v Derva Inc (The Sur) Surrey Shipping Co v Compagnie Continentale (France) SA (The Shackleford) [1978] 1 Lloyd’s Rep 191, [1977] 10 WLUK 35..................................................9.37 Swynson Ltd v Lowick Rose LLP (in liquidation) (formerly Hurst Morrison Thomson LLP) [2017] UKSC 32, [2018] AC 313, [2017] 2 WLR 1161, [2017] 3 All ER 785, [2017] 4 WLUK 238, [2017] 1 CLC 764, 171 Con LR 75, [2017] PNLR 18.........................................................................................4.40 Syros Shipping Co SA v Elaghill Trading Co (The Proodos C) [1980] 2 Lloyd’s Rep 390, [1980] 3 WLUK 258, [1981] Com LR 80............................................9.37 Sze Hai Tong Bank v Rambler Cycle Co [1959] AC 576, [1959] 3 WLR 214, [1959] 3 All ER 182, [1959] 2 Lloyd’s Rep 114, [1959] 6 WLUK 90, (1959) 103 SJ 561.................................................................................................................2.19 T TB & S Batchelor & Co Ltd v Owners of the SS Merak (The Merak) [1965] P 223, [1965] 2 WLR 250, [1965] 1 All ER 230, [1964] 2 Lloyd’s Rep 527, [1964] 12 WLUK 8, (1964) 108 SJ 1012..............................................8.18 TW Ranson Ltd v Manufacture d’Engrais et de Produits Industriels (1922) 13 Ll L Rep 205, [1922] 11 WLUK 54......................................................................4.18, 7.10 Tamvaco v Lucas (No 1) (1859) 1 El & El 581, 120 ER 1027, [1859] 1 WLUK 371...........................................................................................................6.18 Taylor & Sons Ltd v Bank of Athens (1922) 10 Ll L Rep 88, [1922] 1 WLUK 103, (1922) 27 Com Cas 142................................................................9.32, 9.33 Tokio Marine & Fire Insurance Co Ltd v Retla Steamship Co (US Ct of Apps) [1970] 2 Lloyd’s Rep 91..........................................................................................6.6 Total Transport Corpn v Arcadia Petroleum Ltd (The Eurus) [1998] 1 Lloyd’s Rep 351, [1997] 11 WLUK 313, [1998] CLC 90, (1998) 95 (1) LSG 24, (1998) 142 SJLB 22.................................................................................................6.20 Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604, [1977] 5 WLUK 68....................................................................................................9.16, 9.27, 9.39

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Table of Cases

para Trade Star Line Corpn v Mitsui & Co Ltd (The Arctic Trader) [1996] 2 Lloyd’s Rep 449, [1996] 7 WLUK 73, [1997] CLC 174...................................................6.10, 6.28 Tradigrain SA v King Diamond Shipping SA (The Spiros C) [2000] 2 All ER (Comm) 542, [2000] 2 Lloyd’s Rep 319, [2000] 7 WLUK 331, [2000] CLC 1503.....................................................................................................8.16 Trafigura Beheer BV v Kookmin Bank Co [2006] EWHC 1921 (Comm), [2007] 1 Lloyd’s Rep 669, [2006] 7 WLUK 744, [2006] 2 CLC 643.............................5.14 Trasimex Holding SA v Addax BV (The Red Sea) [1999] 1 Lloyd’s Rep 28, [1998] 7 WLUK 230...............................................................................................1.9 Tregelles v Sewell (1862) 2 Hurl & N 574, [1862] 1 WLUK 300; aff’d (1863) 7 Hurl & N 584...........................................................................................................4.10 Tromp, The [1921] P 337, (1921) 8 Ll L Rep 28, [1921] 5 WLUK 105...................6.30 Trucks & Spares Ltd v Maritime Agencies (Southampton) [1951] 2 All ER 982, [1951] 2 Lloyd’s Rep 345, [1951] 2 TLR 1021, [1951] 11 WLUK 13, [1951] WN 597, (1951) 95 SJ 788.........................................................................2.21 Tsakiroglou & Co v Noblee Thori GmbH [1962] AC 93, [1961] 2 WLR 633, [1961] 2 All ER 179, [1961] 1 Lloyd’s Rep 329, [1961] 3 WLUK 111, (1961) 105 SJ 346....................................................................................................4.18, 7.11 Turner v Liverpool Docks Trustees (1851) 6 Ex 543, 155 ER 659, [1851] 1 WLUK 41..............................................................................................................5.18 U UCO Bank v Golden Shore Transportation Pte Ltd [2005] SGCA 42, [2006] 1 SLR........................................................................................................................4.28 Uhenbels, The see Sea Calm Shipping Co SA v Chantiers Navals de l’Esterel SA (The Uhenbels) Union Industrielle v Petrosul [1985] AMC 551 (Fed Ct of Canada 1984)..............1.16, 8.18 Union Power, The see Dalmare SpA v Union Maritime Ltd United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord) [1983] 1 AC 168, [1982] 2 WLR 1039, [1982] 2 All ER 720, [1982] 2 Lloyd’s Rep 1, [1982] 5 WLUK 153, [1982] Com LR 142..9.28 V V Berg & Son Ltd v Vanden Avenue-Izegem PVBA [1977] 1 Lloyd’s Rep 499, [1976] 11 WLUK 84...............................................................................................9.37 Varenna, The see Skips A/S Nordheim v Syrian Petroleum Co & Petrofina SA (The Varenna) Vargas Pena Apezteguia y Cia SAIC v Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394, [1986] 7 WLUK 320...............................5.12, 9.16, 9.33, 9.40, 9.41, 9.42, 9.43 Veba Oil Supply & Trading GmbH v Petrotrade Inc (The Robin) [2001] EWCA Civ 1832, [2002] 1 All ER 703, [2002] 1 All ER (Comm) 306, [2002] 1 Lloyd’s Rep 295, [2001] 12 WLUK 110, [2002] CLC 405, [2002] BLR 54..........................................................................................................6.39 Vikfrost, The see W & R Fletcher (New Zealand) v Sigurd Haavik A/S (The Vikfrost) Vitol SA v Conoil plc [2009] EWHC 1144 (Comm), [2009] 2 Lloyd’s Rep 466, [2009] 5 WLUK 563...............................................................................................1.28 Vitol SA v Norelf Ltd (The Santa Clara) [1996] 2 Lloyd’s Rep 225, [1996] 6 WLUK 250, [1996] CLC 1159, (1996) 15 Tr LR 347, (1996) 93 (26) LSG 19, (1996) 146 NLJ 957, (1996) 140 SJLB 147..................................9.11

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para W W & R Fletcher (New Zealand) v Sigurd Haavik A/S (The Vikfrost) [1980] 1 Lloyd’s Rep 560, [1979] 7 WLUK 14...................................................................8.22 Wait, Re [1927] 1 Ch 606, [1926] 12 WLUK 62...........................................................5.8 Wait & James v Midland Bank (1926) 24 Ll L Rep 313, [1926] 3 WLUK 19, (1926) 31 Com Cas 172..........................................................................................5.11 Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV [1975] 1 Lloyd’s Rep 146, [1974] 10 WLUK 86......................... 2.46, 2.49, 3.7, 3.14 Warren Import Gesellschaft Krohn & Co v Alfred C Toepfer (The Vladimir Illich) [1975] 1 Lloyd’s Rep 322, [1974] 11 WLUK 35.......................................5.12, 9.18 Welex AG v Rosa Maritime Ltd (The Epsilon Rosa) (No 2) [2003] 2 Lloyd’s Rep 509, [2003] 7 WLUK 107, [2003] 2 CLC 207.............................................1.37, 8.17 White Sea Timber Trust Ltd v WW North Ltd (1933) 44 Ll L Rep 390, [1932] 12 WLUK 60...........................................................................................................7.23 Wiehe v Dennis Bros (1913) 29 TLR 250.................................................................... 4.16, 5.5 Wilomi Tanana, The see Mendala III Transport v Total Transport Corpn (The Wilomi Tanana) Wimble v Rosenberg & Co [1913] 3 KB 743, [1913] 7 WLUK 129.........................4.21 Wise, The see Vitol SA v Esso Australia Ltd (The Wise) [1989] 1 Lloyd’s Rep 96, [1988] 1 WLUK 892; revs’d [1989] 2 Lloyd’s Rep 451, [1989] 7  WLUK 80......................................................................................................... 1.7, 4.10, 5.14 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, [1972] 2 WLR 1090, [1972] 2 All ER 271, [1972] 1 Lloyd’s Rep 439, [1972] 4 WLUK 31, (1972) 116 SJ 329................................................6.6 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1971] 2 QB 23, [1971] 2 WLR 272, [1971] 1 All ER 665, [1971] 1 Lloyd’s Rep 25, [1970] 11 WLUK 109, (1970) 115 SJ 56................................................9.37 Y Yien Yieh Commercial Bank Ltd v Kawi Chung Cold Storage Co Ltd [1989] 2 HKLR 639............................................................................................................1.36 Ythan, The see Primetrade AG v Ythan Ltd (The Ythan) Yue You 902, The [2019] SGHC 106, [2019] 2 Lloyd’s Rep 617, [2019] 4 WLUK 666...........................................................................................................2.29 Z Zenziper Grains & Feed Stuffs v Bulk Trading Corpn Ltd [2000] EWCA Civ 307.............................................................................................................................1.38

xxx

Chapter 1

Documentary Sales on ‘Shipment Terms’

INTRODUCTION1.1 DOCUMENTARY SALES ON SHIPMENT TERMS 1.7 PHYSICAL AND DOCUMENTARY DUTIES OF SELLERS UNDER CONTRACTS ON SHIPMENT TERMS 1.10 (a) The Seller’s Physical Duties 1.11 (i) Physical Duties Relating to the Goods 1.12 (ii) Physical Duties Relating to the Shipment of the Goods 1.13 (b) Documentary Duties 1.24 LETTER OF CREDIT DESCRIBED 1.27 IDENTIFYING THE TERMS OF THE CONTRACT OF SALE 1.29 (a) Incorporation of Terms 1.31 (b) Incoterms 2020 and Their Incorporation 1.38

INTRODUCTION Commercial Risks in International Trade Transferring goods across long distances over the seas carries inherent risk and these risks give rise to the contracts which are the subject of this book. Sales of goods which need to be carried by sea differ from straightforward domestic sales in a number of ways. First, the goods will normally be shipped from a port far from the legitimately watchful eye of the buyer who may be many thousands of miles away from the port of shipment, waiting for the goods to arrive. Second, they traverse long distances, in the custody of the carrier, normally a company quite independent of either seller or buyer. Third, the risks involved in such transit are greater than they would otherwise be, given the goods are being transported across the seas. Finally, the transaction is normally irreversible, in that the physical return of the goods to the seller is in practice unlikely to be a realistic option. To judge by these concerns, one would be forgiven for wondering why anyone would consider trading goods across the high seas: what if, for instance, the goods are lost, damaged or delayed in transit? Clearly, though, people do trade goods across the high seas, and, by all accounts, do so very profitably. One of the reasons why international trade has risen above the difficulties caused by distance is that the trading community, followed, at times 1

1.1

Documentary Sales on ‘Shipment Terms’

1.2

reluctantly and at times even confusingly, by the law, has developed three main types of contract which cater for the peculiar needs of international commerce1.

Characteristic Features of Shipment Sales 1.2

These three contracts are known as cost, insurance, freight (CIF), cost and freight (C&F) and free on board (FOB)2 sale contracts, and they share a number of common characteristics. First, although they are contracts for the sale of goods, these contracts all stipulate for, or at any rate contemplate: (1) the conclusion of contracts of carriage; (2) insurance for the goods during transit; and possibly (3) the opening of a letter of credit between the buyer’s and seller’s banks3. The contract of carriage will normally be evidenced by a bill of lading (ie  loading) which the carrier will tender (ie give) to the seller once the goods have been loaded on board the vessel, and which the seller will normally be under a duty to tender to the buyer in return for the price of the goods4. Secondly, although the arrival of the goods at the agreed destination is the commercial purpose of the contract of sale, such contracts are concluded on ‘shipment terms’ rather than ‘arrival terms’, which means that physical delivery under the contract is performed by the seller at the loading port (rather than the destination port). So, the seller’s physical duty of delivery is effected when the goods could still be many thousands of miles from their intended recipient. This brings us to our third characteristic feature of shipment sales: the parties to a sale on shipment terms owe each other not only duties of a physical character, but also other, quite separate duties, of a documentary character, ie to tender to the buyer documents stipulated in the sale contract.

Themes 1.3

Implicit in the features common to CIF, C&F and FOB contracts are three themes which run through this book: First, the export of goods normally involves interrelated contracts: indeed, problems which arise under one contract involved in the export of goods can frequently only be explained in terms of rules relating to another of those contracts connected with the commercial use of the vessel – normally a charterparty. Thus, to take one example, a bill of lading provided by the carrier to the shipper/ seller on loading may give, as the destination of the voyage, the phrase ‘as per 1

2

3 4

For a description of the historical development of such contracts, see ‘The Origin of FOB and CIF Terms and the Factors Influencing Their Choice’, DM Sassoon, 1967 JBL 32; and ‘Application of FOB and CIF Sales in Common Law Countries’, DM Sassoon in (1981) 1 European Transport Law, 50. While the terms CIF and C&F are inextricably linked with goods traded across the high seas, the term FOB has also been used for domestic sales involving land transit: see Sassoon C.I.F & F.O.B Contracts, F Lorenzon, Gen ed (6th edn, 2017, Sweet & Maxwell) (hereinafter referred to as ‘Sassoon’), para 9–007. For more on letters of credit, see para 1.27. For more on bills of lading, see para 1.26.

2

Introduction

1.3

charterparty’. This could cause a bank confirming a letter of credit to withhold payment under that letter of credit, because the relevant rules bar payment against tender of a bill of lading with reference to it being ‘subject to a charterparty’, such as the Uniform Customs & Practice 600 Rules (‘UCP 600’)5. Even where no letter of credit is in place, the buyer may, especially if enticed by a falling market, be inclined to reject the bill when tendered under their CIF contract. Thus, if the bill of lading leaves it in doubt as to whether the contract of carriage which the buyer inherits from the seller provides for discharge of the goods at the port agreed with the seller under the contract of sale, can the buyer sue the carrier if the goods are not discharged at that port? Finally, the bill of lading, having been issued subject to a charterparty, is likely to leave the buyer in doubt as to the very identity of the carrier if the goods are damaged in transit. Thus, the same feature of the bill of lading, its reference to a charterparty, can be seen to have a domino-like effect upon the several contracts making up an export transaction. Secondly, shipping arrangements or documents tendered often fail to conform to the requirements of the sale contract. Disputes frequently arise because traders and execution officers, or freight departments and finance departments within the same company, act independently of each other in the same transaction. For instance, an employee in a shipper’s freight department may be quite happy to agree carriage with a vessel over three years old, as the owner of that vessel might charge less freight; but they may miss (or ignore) a clause in the sale contract providing that the goods are only to be shipped on vessels less than three years old. Unnecessary disputes and consequent costs can be avoided if all the players involved in a transaction take account of the different commercial concerns of others on the same side of the transaction. To negotiate and draft contracts of sale with which freight and finance departments on the same side of the deal can comply will avoid unwelcome surprises at later stages of the transaction. Thirdly, a sale of goods on shipment terms involves two types of performance: a physical and a documentary mode of performance, namely to tender an agreed set of documents. This duality of performance is of crucial significance in certain aspects of the law on CIF and FOB contracts, particularly in the areas of the passage of risk6, the remedies of rejection of goods and documents7. For instance, under a CIF contract the seller may make a contract of carriage for the goods, ship the goods and the goods may arrive. But they may also be under a duty to tender to the buyer a clean bill of lading (ie one which states that the goods are in apparent good order and condition). If the seller tenders a bill of lading not conforming to this sale contract requirement, they will be in breach. By contrast, 5

See Uniform Customs and Practice (UCP) for Documentary Credits, art 20(a)(vi), ICC (2006), hereinafter referred to as the ‘UCP 600’ and further described at fn 66 below. Under article 20(a) (vi), banks must reject, unless otherwise stipulated in the credit, a bill of lading which contains an indication that it is subject to a charterparty. The position would be different if the document tendered to the bank is a ‘charterparty bill of lading’, covered by the UCP 600 art 22. We shall be returning to this matter in greater detail in Chapter 8. 6 See Chapter 4. 7 See Chapter 9.

3

Documentary Sales on ‘Shipment Terms’

1.4

sale of goods in the domestic context impose upon the seller only one mode of performance, namely to deliver the goods. This book examines these three central themes, namely: (1) the interrelationship of the contracts involved in an export transaction; (2) the consequent importance of thinking holistically in terms of those interrelated contracts; and (3) the duality of performance – physical and documentary – imposed on the shipper/seller in the context of CIF, C&F and FOB contracts. These themes explain both the selection and the organisation of the areas chosen for discussion8.

Structure 1.4

This chapter considers the role of the bill of lading as a document of title – that is to say, as a document which signifies the right to claim possession of the goods from the carrier and the power to transfer that right through transfer of the bill of lading. In practical terms this relates to the method whereby the seller and then the buyer exercise control over goods in the possession of the carrier. Chapter  2 considers the allocation of risk relating to loss, damage or delay to the goods, as between seller and buyer; title to sue the carrier; and property as between the owner of the goods and the rest of the world. This order is adopted because (a) the reason the buyer needs title to sue the carrier is that in shipment sales the buyer bears the risk of loss or damage to the goods while they are in transit, and (b) because, although property may seem conceptually significant, the question of who owns property in the goods (unlike the allocation of risk) rarely raises much difficulty in practice. In Chapters 3 to 8, we consider the bill of lading as one of the documents tendered by the seller to the buyer for payment of the price. We will have seen in Chapter 1 that the bill of lading is the crucial document, because it symbolises control over the goods: does the bill of lading give the buyer – and only the buyer – the right to gain access to the goods that are physically in the custody of the carrier and the power to pass that right on to on-buyers? The bill of lading is also important to the buyer, however, for a number of other reasons. What does the buyer want the bill of lading to say about the goods? What do they want the bill of lading to say about the terms under which the goods are carried? And how does the buyer ensure that the seller will tender a bill of lading that says what the buyer wants it to say on both matters? Because the buyer is keenly interested in what the bill of lading says about both these matters, the contract of sale and the letter of credit will usually contain documentary stipulations on both matters. Chapter 9 considers the rejection of shipping documents. This particular remedy, a species of termination of contract for repudiatory breach, is selected because 8

For works covering a broader area, see Benjamin’s Sale of Goods, M Bridge, Gen ed (8th edn, 2012, Sweet & Maxwell), hereinafter referred to as ‘Benjamin’; and Schmitthoff: The Law and Practice of International Trade, eds, C  Murray, D  Holloway, D  Timson-Hunt (12th edn, 2012, Sweet & Maxwell), hereinafter referred to as ‘Schmitthoff’.

4

Introduction

1.6

termination is particularly challenged by the dual modes of performance in documentary sales on shipment terms: if a seller performs in a binary manner, physical and documentary, how and when does a buyer terminate the contract and for which breach? The title of this book refers to ‘Bills of Lading’. Bills of lading are not, however, the only shipping document known to international trade. We shall throughout also investigate the particular issues which may arise in international trade where other shipping documents are issued and tendered, namely sea waybills, so-called ‘straight’ bills of lading, combined transport documents, delivery orders, and charterparty bills of lading.

Contracts Governed by English Law The rules whereby an English tribunal would determine the law governing a particular contract of sale are contained in Regulation (EC) 593/2008, known as ‘Rome I’9. This Regulation is well documented in other works on the Conflict of Laws10. Suffice it here to say that the safest way in which parties to a contract of sale can dictate the law governing their contract is to choose their governing law expressly in the contract – and most international sale contracts do so, either in standard forms or in so-called confirmation slips which record the specially negotiated contract between the parties. For instance, GAFTA General Feeding Stuffs contract provides for English applicable law and jurisdiction (except for certain matters relating to arbitration)11. Throughout this book, we shall be assuming that the proper law of the contract of sale is English law.

1.5

This Chapter Turning to this chapter, we have four important but preliminary tasks: •

First, we shall examine the sense in which the contracts discussed in this book are ‘documentary’ contracts on ‘shipment’ terms and what that means.

•

Secondly, we shall set out in brief the physical and documentary duties of traders selling or buying on such terms.

•

Thirdly, we shall describe briefly the mechanism of a letter of credit, the payment device used most commonly in such sales.

9

Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I), applying to contracts concluded as from 17 December 2009, Article 3.1: ‘A contract shall be governed by the law chosen by the parties’. For contracts concluded before 17 December 2009, the Convention on the Law Applicable to Contractual Obligations of 1980 (‘the Rome Convention’) applies, to similar effect. Article 3(1) of the Rome Convention states: ‘A contract shall be governed by the law chosen by the parties’: see the Contracts (Applicable Law) Act 1990 Sch 1 art 3(1). 10 See in particular Cheshire, North & Fawcett: Private International Law, J  Fawcett, J  Carruthers, P North (14th edn, 2008, Oxford University Press); and Morris: The Conflict of Laws, D McClean and V Ruiz Abou-Nigm, eds (16th edn, 2016, Sweet & Maxwell). 11 GAFTA General Feeding Stuffs sale contract at clause 27.

5

1.6

1.7 •

Documentary Sales on ‘Shipment Terms’ Fourthly, we shall look at problems that might arise with identifying the terms upon which parties have concluded their contract of sale.

DOCUMENTARY SALES ON SHIPMENT TERMS Shipment Sales Distinguished From Domestic and From Arrival/Destination Sales 1.7

When contracts concluded on CIF, C&F, or FOB terms are described as documentary sales agreed on shipment terms, this means that the seller of goods on shipment terms promises that they will ship the goods covered by the documents stipulated for in the contract, or procure goods shipped, for the agreed destination12. Where the seller sells FOB, they promise to deliver the goods on board a nominated ship and to provide the buyer with any assistance required to obtain the documents necessary for discharge of the goods13. What the seller does not do in either case is promise actual delivery at the delivery port: the seller does not guarantee that the goods will reach the buyer in any state or condition, within a given time or indeed at all14. In the context of FOB sales, Lord Mance put it pithily thus in Scottish & Newcastle International Ltd v Othon Ghalanos Ltd15: ‘The physical obligation by way of delivery which characterises an essentially fob contract such as the present is clearly shipment. … It is on and at shipment that the goods have to be of the contractual quantity and quality as well as fit for carriage to destination, … and it is then that the risk of any subsequent loss, damage or problem passes to the buyer’16. In this sense, CIF, C&F  and FOB contracts are contracts promising shipment, rather than arrival: shipment is where and when the contract is physically performed and it is at shipment that the seller needs to ‘deliver’ goods of the contract description or, in the jargon of the trade, ‘on spec’. However, although the seller performs their physical obligations at the seller’s load port, that performance would amount to nothing to the buyer unless the seller also had 12 See, for example, James Finlay & Co v NV Kwik Hoo Tong HM [1929] 1 KB 400 at 407–8; and Shipton, Anderson & Co v John Weston & Co (1922) 10 Ll LR 762 at 763. 13 It is difficult to state the duties of the FOB seller in general terms, because, as we shall presently see, the FOB contract comes in a number of shapes and forms: see Benjamin, at para 20–014. 14 Contracts agreed by the parties to be on CIF, C&F  or FOB terms do, on occasion, contain terms which appear to place on the seller responsibility for the sound arrival of the goods, or for their arrival in a certain quantity or for their arrival by a certain time. Thus, in The Wise [1989] 1 Lloyd’s Rep 96 ([1989] 2 Lloyd’s Rep 451, CA remitted on grounds irrelevant to the present point), the contract of sale stipulated: ‘Delivery: Vessel TBN. Arrival March 15–30 1986’. Such terms, seeking to shift the natural order of things in shipment sales, will be discussed in detail in Chapter 4, as part of our discussion on the incidence of risk in shipment sales; Erg Petroli S.P.A. v Vitol S.A. (The ‘Ballenita’ And ‘BP Energy’) [1992] 2 Lloyd’s Rep 455 at 464 Col.1; see also para 4.10. 15 [2008] 1 Lloyd’s Rep 462 at 472 [52]. 16 The central point in the case was whether the place in which the goods were delivered, for the purposes of Regulation (EC) 44/2001 (the ‘Judgments Regulation’), was the port of shipment, Liverpool, or the destination of the goods, Limassol.

6



Documentary Sales on Shipment Terms

1.9

some means whereby they could pass to the buyer control of the goods while in transit and access to the goods on arrival at their intended destination. This right of control and access has necessarily to be symbolised through a document: with the goods being in the physical possession of a third party (ie the carrier, who is not a party to the contract of sale), the only link between the goods and the parties to the sale contract has to be manifested in documentary form. These contracts are therefore properly regarded as shipment contracts, in terms of the place of their performance, and documentary in terms of one of the modes of their performance. These contracts can consequently be said to be documentary sales on shipment terms. By contrast, the seller of goods in a domestic context promises ‘to deliver the goods … in accordance with the terms of the contract of sale’17 and delivery normally happens at ‘the seller’s place of business, if they have one, and if not, his residence’18. Likewise, a seller of goods which need to be carried across national boundaries may well sell on terms which place upon the seller not only the duty to organise the carriage of the goods, but also the responsibility under the contract of sale for their safe arrival (which is not the case on FOB, C&F and CIF contracts where risk passes earlier). This would be the case, for example, where the goods are sold ‘ex ship’19. Domestic and ‘arrival’ contracts of sale are therefore fundamentally different from documentary sales on shipment terms.

Consequences From this basic principle flow a number of important consequences to which we shall later return at greater length. First, risk in the goods is generally passed to the buyer at an early stage, namely the point of shipment. Secondly, the seller does not bear the risk of loss of or damage to the goods during transit. Thirdly, the buyer’s remedies for the loss of or damage to the goods during transit normally lie not against the seller but against the carrier or the insurer. Fourthly, those rights against third parties, carrier or insurer, are expressed and contained in certain shipping documents (such as the bill of lading and the policy of insurance) which, in certain circumstances, transfer rights of action against the carrier and the cargo insurer.

1.8

Sale of Goods or Documents? These propositions have given rise to a debate about whether CIF and C&F contracts and certain types of FOB contracts are sales of goods or sales of documents. Thus, for example, in James Finlay & Co v NZ Kwik Hoo Tong HM, Scrutton LJ was persuaded that a CIF contract was a sale of documents by the fact ‘that the goods may be lost before the documents are tendered and before the 17 See SOGA 1979 s 27. 18 See SOGA 1979 s 29(2). 19 See Benjamin, paras 21–014, 21–015 and 21–017.

7

1.9

1.10

Documentary Sales on ‘Shipment Terms’

property has passed’20. A CIF sale is certainly a sale of documents in the sense that the buyer is bound to pay the price on tender of the documents stipulated for in the contract, even where such tender occurs before the arrival of the goods at the discharge port21. It is also a sale of documents in the sense that, where a contract, calling itself a CIF contract, permits the seller to tender no documents at all and to claim payment simply on delivery of the goods, then such a contract will not be treated as a CIF contract22. However, on the other hand, where the seller tenders documents which state goods to have been shipped which have not been shipped at all, the seller is clearly in breach of contract and, in this sense, the contract is in a very real way a sale of goods23. The contract contemplates performance in two modes: it would be accurate, therefore, to describe a contract on shipment terms as a sale of goods covered by documents24.

PHYSICAL AND DOCUMENTARY DUTIES OF SELLERS UNDER CONTRACTS ON SHIPMENT TERMS Physical and Documentary Duties – Incoterms 2020 1.10

The duties imposed on sellers by contracts concluded on shipment terms can be conveniently classified into two classes: (1) physical duties; and (2) documentary duties. These duties have been recited in numerous authorities25. Moreover, as handy a compendium as any of the duties generally imposed in CIF and FOB contracts is provided by the relevant terms of Incoterms 2020, a voluntary set of rules first published in 1936 and since regularly revised26 by the International Chamber of Commerce (ICC). Incoterms 2020 contains 11 three-letter terms 20 [1929] 1 KB 400, see particularly 407–8. This was a view to which the judge had earlier subscribed, as Scrutton J, in Arnold Karberg & Co v Blythe, Green, Jourdain & Co [1915] 2  KB  379 at 388; affirmed by the Court of Appeal at [1916] 1 KB 495, but with disapproval of Scrutton J’s dictum expressed at pp 511, 514. See also S v A and Another [2016] 1 Lloyd’s Rep. 604 at para 61. 21 See Clemens Horst & Co v Biddell Bros [1912] AC 18. 22 Holland Colombo Trading Society Ltd v Segu Mohammed Khaja Alawdeen and Others [1954] 2 Lloyds Rep 45 at 50; see also Soules Caf v PT Transap of Indonesia [1999] 1 Lloyd’s Rep 917 at 918; ‘a cif contract is an essentially documentary transaction’. 23 See Hindley & Co Ltd v East Indian Produce Co Ltd [1973] 2 Lloyd’s Rep 515. See also, for the view that a CIF contract is not a sale of documents, Ross T Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60 at 70; and The Gabbiano [1940] P 166 at 174. 24 Or as a ‘sale of goods to be performed by the delivery of documents’: see Bankes LJ in Arnhold Karberg & Co v Blythe Green Jourdain & Co [1916] 1 KB 495 at 511; or as a ‘sale of documents representing goods’: see Donaldson MR in Congimex Companhia Geral de Comercio Importadora e Exportadora, SARL  v Tradax Export SA  [1983] 1 Lloyd’s Rep 250; see also BEI  v SKI  [1995] 2 Lloyd’s Rep 1 at 5 LHC; or as ‘a contract for the sale of goods to be performed by the delivery of documents’: see Hobhouse LJ in the Red Sea [1999] 1 LR 28 at 32. See, generally, Benjamin, para 19–008. 25 For CIF sales, see, for example, The Rio Sun [1985] 1 Lloyd’s Rep 350 at 357, and other cases cited at Benjamin, paras 19–010 to 19–075. For FOB contracts, see Benjamin, paras 20–014 to 20–045. 26 The current version is contained in Incoterms 2020, which entered into force on 1 January 2020, obtainable from ICC-UK at 1–3, Staple Inn, High Holborn, London WC1V 7QH.

8



Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 1.10

(CIF, DAP, FOB etc) split into two major families of terms, entitled respectively ‘Rules for any mode or modes of transport’ and ‘Rules for sea and inland waterway transport’. The first family, comprising seven terms, is intended for use in sale contracts whatever the mode or modes of transport employed to carry the goods from the seller to the buyer27. Where these terms are used, a ship may be one of the means of carriage employed: these terms should not, however, be used where either the place where the seller hands the goods to a carrier, or the place where the carrier hands the goods to the buyer, is on board (or alongside) a vessel28. Thus, for example, one could have a sale contract where the goods are delivered FCA seller’s container depot at an inland point, with the buyer organising carriage from that point in the seller’s country to a port in the buyer’s country. Similarly, one could have a sale contract where the goods are delivered CIP at a port in the seller’s country, with the seller organising carriage from that port to an inland point in the buyer’s country. Thus, where either the point of delivery or the ultimate destination of the goods is not on board or alongside a vessel, then the parties should be looking to this first family of terms for their chosen Incoterm. On the other hand, the second family of terms is intended for use where both the point of delivery and the contractual destination are ports. The four terms in this second family are FAS (free alongside ship), FOB (free on board), CFR (cost and freight), and CIF (cost, insurance and freight). Of all 11 terms, the paradigm terms are the FOB and the CIF terms29. The FCA term is modelled on the FOB term but takes the point of delivery ashore to an inland point, while FAS takes the FOB delivery point beyond the loading port to a point alongside the ship engaged by the buyer; the CPT and CIP terms are modelled on the CIF term but take either the load or discharge port to an inland point, and the CFR simply omits insurance from the seller’s obligations. This book will, therefore, take CIF and FOB contracts as its templates, particularly given that this book is entitled Bills of Lading in Commodities Trade, and commodities are most commonly traded and carried across the seas. This notwithstanding, however, reference will be made to other Incoterms Rules where appropriate. Finally – although, as we shall see presently in this chapter, Incoterms 2020 do not automatically apply to contracts governed by English law – the CIF and the FOB terms in Incoterms 2020 do provide a useful summary of sellers’ and buyers’ duties broadly reflecting those applying to contracts on shipment terms governed 27 The seven terms included in this family are EXW (ex works), FCA (free carrier named point), CPT (carriage paid to), CIP (carriage and insurance paid to), DAP (delivered at place), DPU (delivered at place unloaded) and DDP (delivered duty paid). 28 See paras 43 and 44 of the Introduction to Incoterms 2020. 29 The FCA term is modelled on the FOB term but takes the point of delivery ashore to an inland point, while FAS takes the FOB delivery point beyond the loading port to a point alongside the ship engaged by the buyer; the CPT and CIP terms are modelled on the CIF term but take either the load or discharge port to an inland point, and CFR simply omits insurance from the seller’s obligations.

9

1.11

Documentary Sales on ‘Shipment Terms’

by English law. Rather than rehearse the duties of the parties to CIF and FOB contracts in full here, reference is simply made to these terms in Incoterms 2020. At this juncture, suffice it to classify the main duties imposed on the seller by such contracts, distinguishing between the seller’s physical and documentary duties.

(a)  The Seller’s Physical Duties 1.11

The seller’s physical duties have two distinct aspects: (1) those which relate to the goods themselves; and (2) those which relate more specifically to the shipment of the goods.

(i)  Physical Duties Relating to the Goods 1.12

Issues of quality or specification commonly arise in disputes relating to the goods themselves: for example, did the protein content of the grain tally with the tolerance allowed in the contract of sale30? Express clauses regarding such matters are of crucial significance to the buyer, both in commercial and in legal terms. The legal significance of such express terms grows when they are put into the context of the conditions implied into contracts of sale by the Sale of Goods Act 1979 (SOGA 1979). These are the implied condition31 that goods should comply with their description in the contract32; that goods should be of satisfactory quality and fit for any agreed particular purpose33; and that they should comply with any agreed sample34. These duties will not be dealt with here, treated as they are in the major works covering the law of domestic sales35.

(ii)  Physical Duties Relating to the Shipment of the Goods 1.13

Disputes relating to the shipment of the goods raise issues that bring the sale contract into close contact with the contract for the carriage of the goods by sea, issues that are of their nature unlikely to arise in the context of a domestic sale of goods. Thus, a contract of sale on shipment terms will contain terms stipulating who, as between seller and buyer, must contract for the carriage of the goods. It will also contain terms imposing a timetable for a number of obligations having to do with the shipping arrangements, such as the choice of a vessel, the time of shipment, or the loading and the unloading of the goods. These duties are dealt

30 See, for example, clause 5 of the standard CIF contract for the shipment of feeding stuffs in bulk, issued by the Grain and Feed Trade Association, hereinafter referred to as GAFTA 100. 31 See SOGA 1979 ss 13(1A), 14(6) and 15(3). 32 See SOGA 1979 s 13. 33 See SOGA 1979 s 14. 34 See SOGA 1979 s 15. 35 See Benjamin; Atiyah’s Sale of Goods, A S Atiyah, J Norman Adams, H L MacQueen (12th edn, 2010, Pearson Education) and M Bridge The Sale of Goods (2nd edn, 2009, Oxford University Press).

10



Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 1.16

with elsewhere in the book36; it is important, however, to make clear at the outset whose duty it is under the contract of sale to contract with the carrier for the carriage of the goods. Who is Bound to Make the Contract of Carriage? It is important to make clear whose duty it is under the contract of sale to make the contract of carriage for three reasons. First and obviously, someone needs to make transport arrangements and the parties to the sale contract need to be clear as between themselves who will bear that responsibility. Secondly, and consequently, if the contract of carriage made does not comply with the standards stipulated for it in the sale contract, the parties to the sale contract need to know who as between them is in breach of those stipulations and therefore liable to the other under the sale contract. Thirdly and perhaps less obviously, the parties to the sale contract need to know the circumstances in which they are, or might eventually become, parties to the carriage contract, with rights against – and possibly responsibilities towards – the carrier.

1.14

Who is Bound to Make the Contract of Carriage in CIF and C&F Sales? The seller is under the duty to conclude a contract of carriage with the carrier where the contract is on CIF or C&F terms. This, in effect, is what is meant by the word ‘freight’ in the phrase ‘cost, insurance, freight’ or ‘cost and freight’37, since the seller is responsible for freight, and freight relates to the price paid to the carrier for shipping the goods. The buyer inherits the seller’s rights of suit under the contract of carriage later, normally through the operation of the Carriage of Goods by Sea Act 1992 s 238 (COGSA 1992).

1.15

Who is Bound to Make the Contract of Carriage in FOB Sales? Where the contract is on FOB terms, the situation is more complex, because, in the words of Devlin J, ‘[t]he f.o.b. contract has become a flexible instrument’39. Three main types of FOB contract have been identified40: the ‘straight’ form, the ‘classic’ form and the ‘extended’ form. Each will be examined in turn.

36 See paras 1.1–1.3 for the obligation to name a vessel within a given time, and para 9.5 for the importance of time in the shipment of the goods. 37 The same is true where the parties incorporate the CPT or CIP terms from Incoterms 2020: see article A4 in each incoterm. 38 See Chapter 4. 39 See Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, at 424. See also Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [2008] 1 Lloyd’s Rep 462 [34], per Lord Mance. 40 These three types of FOB contract are not exhaustive: see Benjamin, paras 20–001 to 20–007, and, for an example of an FOB contract which fitted none of the three main types precisely, see The Roseline [1985] AMC 552.

11

1.16

1.17

Documentary Sales on ‘Shipment Terms’

‘Straight’ FOB Contracts – the Buyer Contracts for Carriage, but What of the Seller? 1.17

The straight form of FOB contract is the simplest to describe41, but the hardest to accommodate into traditional principles of contract law. Here, the arrangements for the carriage of the goods from the loading port are left to the buyer, the seller’s duty being simply to load goods on a nominated vessel at a given port. The position of the buyer is quite clear: they are a party both to the contract of sale and to the contract of carriage. The position of the seller is, however, more difficult. While clearly a party to the contract of sale, it would appear that, on the normal basis of the doctrine of privity of contract, they are not a party to the contract of carriage, that contract being concluded between the carrier and the buyer. The upshot of the doctrine of privity of contract might, however, dismay both the seller and the carrier. A seller whose goods have not been lifted by the carrier might, subject to any special terms in the contract, be liable to the buyer under the contract of sale for not having delivered the goods free on board the nominated vessel. Yet, in the absence of a contract of carriage with the carrier and if the goods have suffered no physical damage, they may find themselves with no contractual remedy against the carrier and have to resort to tort law. Furthermore, if the goods do not leave the loading port and suffer physical damage during an attempt at shipment, the carrier too would be disappointed by a strict application of the doctrine of privity. Faced by a possible tort action brought by the seller, it would then be in the interests of the carrier to be bound by a contract of carriage with the seller so as to take advantage of exclusion clauses or limitation clauses contained in that contract of carriage, a contract of carriage which, on traditional privity of contract principles, would not exist. Pyrene v Scindia – the Solution

1.18

These considerations clearly swayed Devlin J in Pyrene Co Ltd v Scindia Navigation Co Ltd42. In that case, a carrier was sued by a seller of goods sold on straight FOB terms and damaged during loading; the carrier pleaded in their defence a term limiting their liability under the contract of carriage concluded with the buyer. The seller, qua shipper, was held to be a party to this contract of carriage, the terms of which thus limited the carrier’s liability towards the seller, originally outside 41 It is also the one assumed to represent the intention of the parties in Incoterms 2020: see the FOB term, art B1. The fact that it is the simplest to describe, and perhaps also the purest form of FOB contract, has led to its sometimes being described, confusingly, as the ‘classic’ form: see The Al Hofuf [1981] 1 Lloyd’s Rep 81 at 84; Schmitthoff, page 19; Benjamin, paras 20–002 to 20–006; and The Law of International Commercial Transactions (Lex Mercatoria), HJ Berman and C Kaufman, in 19 Harvard International Law Journal (1978) 221 at 233. The terminology is clearly unsettled: different adjectives again are used in ‘Practising CIF and FOB  Today’, J  Lebuhn, in (1981) 1 European Transport Law 24, at 30–35, where the labels used were ‘real’ (straight), ‘unreal’ (classic), and ‘extended’. 42 [1954] 2 QB 402.

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Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 1.19

the charmed circle of privity of contract. Devlin J was happy to brush aside any objections founded upon the doctrine of privity. In a dictum which comes close to the civil law concept of a promise for the benefit of a third party, Devlin J said43: ‘This is the sort of situation that is covered by the wider principle; the third party takes those benefits of the contract which appertain to his interest therein, but takes them, of course, subject to whatever qualifications with regard to them the contract imposes’. Moreover, the carrier was entitled to defend themselves by reference to the limitation applicable to a bill of lading under the Hague Rules that should have been issued, despite the fact that no bill of lading was actually issued for the goods damaged44. This was because, though no bill of lading was issued, the issuance of such bill of lading was contemplated. Accordingly, the parties envisaged themselves to be governed by the terms in that bill of lading. The Athanasia Comninos The existence of a contract of carriage between the seller on straight FOB terms and the carrier may bring burdens as well as benefits. In The Athanasia Comninos and Georges Chr Lemos45, a ship owner sought to recover against both sellers and buyers of goods which allegedly caused damage to the vessel46. The contract of sale was on straight FOB terms, the buyers having made a contract of affreightment with time-charterers, with the bill of lading naming the sellers as shippers and the buyers as consignees. In finding that the sellers were party to a contract of carriage with the carrier and could, therefore, be found liable to the carrier under such a contract47, Mustill J took a very simple common-sense approach, uncluttered by considerations of privity.48: ‘As regards [the sellers], there is in my view no room for doubt. They were shippers of the goods, and were named as such in the bill of lading, without qualification. It was argued on [the sellers’] behalf that it was in fact [the buyers] who were participants in the contract of carriage. To my mind, the position of [the buyers] has no bearing on the potential liability of [the sellers]. To show that [the buyers] were principals would not relieve [the sellers] from liability, but would entail that both parties were principals vis-à-vis the plaintiffs.’ 43 Loc cit at 426. 44 The bill of lading was never issued because the goods sued on were damaged on the quay by the carrier before they were loaded. They were never loaded, so the carrier never issued a bill of lading, but the seller was still able to sue under the putative bill, subject to the defences therein because the goods were ‘covered’ by that putative bill. See also The ‘Happy Ranger’ [2002] 2 Lloyd’s Rep 357 at 362, para 21, Tuckey LJ. 45 [1990] 1 Lloyd’s Rep 277; see also AP Møller-Maersk A/S v Sonaec Villas Cen Sad Fadoul and Others [2011] 1 Lloyds Rep 1 at 7 Col.2. 46 The owners of the Athanasia Comninos also sought, unsuccessfully, to recover against the timecharterers. 47 On the facts, the court found that the sellers had not been proved to have committed the alleged breach of the contract of carriage, viz. the shipment of dangerous goods without notification. 48 [1990] 1 Lloyd’s Rep 277 at 280.

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Result of the Cases on ‘Straight’ FOB Contracts 1.20

These cases are significant both in theory and in practice. First, they show that where the doctrine of privity of contract would simply not fit the essentially triangular model of a contract of sale on shipment terms, the courts have taken a pragmatic approach and brushed aside arid principle49. This pragmatism, by no means limited to this particular corner of commercial law50, is a theme to which we shall return, most obviously in discussion on the buyer’s title to sue the carrier on the contract of carriage51. Secondly, these cases show that a seller of goods on straight FOB terms may find themselves party to a contract of carriage with a carrier engaged by the buyer on terms agreed by the buyer. This contract may impose liabilities on the seller52 or may exclude or limit the seller’s rights of recovery against the carrier53. To cover the seller against the alternative risks of liability or limited recovery, a seller on straight FOB terms might consider drafting a clause in the sale contract whereby the buyer undertakes to indemnify the seller for any losses caused to the seller through the enforcement against the seller of the terms of the contract of carriage which they did not negotiate. ‘Classic’ FOB Contracts

1.21

Devlin J also described two other types of FOB contract in the Pyrene case, the classic and the extended forms. In the classic FOB sale, the buyer nominates the vessel and the seller concludes the contract of carriage for account of the buyer. This form is more likely to occur where the goods traded are shipped on a vessel ‘willing to load any goods brought down to the berth or at least those of which she is notified’54, that is to say where the goods are carried on a vessel running a 49 Pragmatism has not had a completely free ride, some dicta making it clear that the spirit of Pyrene should be reined in. See Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 at 471; and The Kapetan Marcos (No 2) [1987] 2 Lloyd’s Rep 321 at 331, per Mustill LJ. Neither the House of Lords in Scruttons nor the Court of Appeal in Marcos found it necessary, however, to overrule Devlin J’s judgment. Devlin J  offered another ratio for his decision, namely that the facts showed an intention to create a contract between the carrier and the shipper, a ratio about which the judge himself had reservations largely because it involved the rather artificial implication of a contract: see [1954] 2 QB 402 at 426–7. However ambivalent Devlin J himself was about this alternative ratio, though, it does serve to allow his decision to survive the aspersions cast by the higher courts upon his ‘wider principle’. 50 See RM  Goode, ‘Twentieth Century Developments in Commercial Law’ (1983) 3  LS  283 at 288–9; Linden Gardens Trust v Lenesta Sludge Disposals Ltd [1993] 3 All ER 417; and Darlington Borough Council v Wiltshier Northern Ltd [1995] 3 All ER 895. The doctrine of privity of contract has been legislatively attenuated in general English contract law by the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999). That Act does not, however, in terms of C(RTP)A 1999 s 6(5), apply to a ‘contract for the carriage of goods by sea’. See generally Benjamin, paras 20–063 to 20–073. 51 See Chapter 4. 52 As it would have done in The Athanasia Comninos [1990] 1 Lloyd’s Rep 277, had the plaintiff proved the alleged breach by the sellers. 53 Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402. 54 Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, at 424.

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Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 1.22

liner service (ie a ship transiting a regular route on a fixed schedule). Here, the contract of carriage will be recorded on a bill of lading, to which the seller is a party as agent55, and to which the buyer is a party as principal. Under this classic type of FOB form, the seller will be able to benefit as agent from any immunities granted to the buyer as principal under the contract with the carrier56. There is nothing, however, to stop both seller and buyer from being regarded on the facts as a principal party to the contract of carriage: this would appear to be the case where a seller and a subsidiary or associate company of the buyer both appear as shippers on the bill of lading57. ‘Extended’ FOB Contracts The third type of FOB sale is the extended FOB contract, also known as the FOB contract with additional services. Here, the seller agrees58 to do more for the buyer than simply provide the goods for shipment at the agreed port. The additional services undertaken by the seller can include anything the parties wish. Thus, they may agree that the seller will conclude the contract of carriage, or effect the policy of insurance, or both. Whatever the agreement, the charge for the additional service is payable by the buyer quite separately from the price for the goods, which goods are strictly the only object of the contract of sale. The charges for the additional services agreed, namely the freight or the premium, may be payable by the buyer either directly to the carrier or the insurer, or indirectly, through the seller. In either case, the cost is for the buyer’s account, such that the buyer takes the risk of any 55 The fact that the contract of carriage is concluded by the seller as agent and for the benefit of the buyer does not preclude the seller themselves being privy to both the benefits and the burdens of the contract of carriage: see Chitty on Contracts, H G Beale, General ed (Sweet & Maxwell, 33rd edn, 2020) (hereinafter referred to as ‘Chitty’), vol II, paras 31–084, 31–085, 31–086 and 31–094. 56 See also Bowstead & Reynolds on Agency, 21st edn, at para 9–122. 57 AP Møller-Maersk A/S v Sonaec Villas Cen Sad Fadoul & Others [2011] 1 Lloyd’s Rep 1 [47]: ‘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; …’. 58 The extended form of FOB contract is reflected in Incoterms 2020, in text in article A4 additional to that found in the equivalent article in Incoterms 2010. The article now reads as follows: ‘The seller has no obligation to the buyer to make a contract of carriage. However, the seller must provide the buyer, at the buyer’s request, risk and cost, with any information in the possession of the seller, including transport-related security requirements, that the buyer needs for arranging carriage. If agreed, the seller must contract for carriage on the usual terms at the buyer’s risk and cost. // The seller must comply transport-related security requirements up to delivery.’ [emphasis added]. The italicized words represent a risk for an unsuspecting buyer who may, on the back of an alleged ‘commercial practice’, find himself, at any rate where the contract of carriage concluded by the seller is on ‘usual terms’, bearing the risk and expense of a contract of carriage in the negotiation of which they have played no part. A buyer who wishes to avoid this risk would be well-advised, where concluding an FOB contract subject to Incoterms 2020, to make it clear in the contract that the responsibility for making the contract of carriage will be his rather than the seller’s: thus, any alleged ‘commercial practice’ is set aside by the express terms of the contract. The same is true where the sale is on FCA terms.

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upward fluctuation in, say, the cost of the freight, between the time when the sale is concluded and the time when the freight is paid. (In FCA, FAS, and FOB the buyer also bears the risk if it asks the seller to organise carriage)59. ‘Extended’ FOB Contracts and CIF Contracts Compared 1.23

The separate invoicing of freight and/or other additional charges makes the extended FOB contract quite different to the CIF contract. In the CIF contract the obligation to contract for the carriage of the goods is an integral part of the seller’s duties under the sale contract, a duty for which they receive payment as an un-itemised part of the price of the goods60. In another sense, though, the two types of contract are similar. In extended FOB contracts as much as in CIF contracts, the seller is a party to the contract of carriage in their own right; and the buyer becomes a party later, again normally through the operation of the COGSA 1992 s 261.

(b)  Documentary Duties 1.24

The documentary aspect of the seller’s duties under sale contracts concluded on shipment terms is one of the two main factors distinguishing such contracts from domestic sales: sales concluded on shipment terms are consequently sometimes called ‘documentary sales’. Accordingly, where the contract is concluded on CIF, C&F, classic FOB, or extended FOB terms62, the seller owes the buyer not only physical duties, but also a duty to tender the commercial documents stipulated for in the contract63.

The Importance of the ‘Documents’ Clause 1.25

Contracts for the sale of goods on shipment terms typically do – and always should – contain a clearly drafted ‘Documents’ clause listing and describing the 59 See FCA at A4; FAS at A4; FOB at A4. 60 But see Bain v Field & Co Fruit Merchants Ltd (1920) 3 Ll LR 26, at 29 (affirmed at 5 Ll LR 16), where Bailhache J suggested obiter that, where a sale contract was concluded on FOB extended terms, and the cargo was made up of ‘comparatively small parcels’, it was the duty of the seller to make the contract of carriage. The judge admitted, though, that this suggestion was out of step with the view generally held. See Lorenzon, CIF and FOB Contracts, 6th edn, paras 9–041 to 9–042. 61 See Chapter 4. Where the sale contract is of the extended FOB type, the only carriage contract to which the buyer can become a party is the contract contained in the bill of lading; they are not a party to any other contract of carriage agreed between the seller qua shipper and the carrier: see The El Amria and El Minia [1982] 2 Lloyd’s Rep 28, particularly at 32. 62 With the additional service of concluding the contract of carriage. 63 Where the contract is concluded on straight FOB terms, the seller may not, of course, have a bill of lading to tender to the buyer; his duty is then to provide a mate’s receipt which the buyer can then exchange with the carrier for a bill of lading: see Incoterms 2020, FOB, A6: the seller must either provide the buyer with ‘the usual proof that the goods have been delivered’ or ‘provide assistance to the buyer … in obtaining a transport document’.

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Physical and Documentary Duties of Sellers Under Contracts on Shipment Terms 1.25

type of documents the seller is to tender for payment64. The precise tenor of the documents to be tendered by the seller under the contract of sale is of importance to both buyer and seller. So far as concerns the buyer, were something to happen to the goods while they were in transit, then the documents tendered by the seller – in particular the bill of lading and the insurance policy – would be crucial to any remedies they might have against the carrier and the cargo-insurer. Furthermore, a buyer acting in a volatile market might wish to sell the goods while the goods were still in transit. The simplest way in which to effect such on-sales in transit would be by selling documents which were freely acceptable on the market. In either case, the first place in which the buyer can effectively bind the seller to tender certain types of document containing certain qualities is in the contract of sale itself, at any rate where the sale is concluded on a cash against documents basis without a letter of credit being in place. The seller’s right to payment will in most cases depend on the tender of documents conforming to the stipulations of the contract of sale. Accordingly, the seller too needs to be clear as to the documents that they are obliged to tender under the contract of sale. The trader within the selling company needs to be able to tell their freight and execution departments what documents need to be collated in order to secure payment. Moreover, they need to ensure, at the early stage of negotiating and drafting the sale contract that they bind themselves to tender documents which their company has a realistic chance of procuring, particularly where they are a seller in a string whose purchase contract upstream was concluded before their sale contract downstream. Where documentary obligations are either too unclear or too rigorous, the opportunities increase for mismatches either between the contracts of sale and carriage or between different sale contracts in a string. In most cases, discrepancies between the carriage documents tendered and the documentary duties in a contract of sale are simply ignored or amicably resolved because of the common commercial interest in the successful completion of the transaction. However, on occasion, market movements or commercial needs provide the motive for an expensive dispute and the gap between the contracts provides the opportunity. Thus, for example, where the market in the goods sold is moving down, buyers tend to become quite fastidious about the conformity of documents with the stipulations of the sale contract. Consequently, a seller alive to the dangers of a volatile and possibly falling market would be well-advised to draft a documents clause which they will be able to satisfy without difficulty or delay and to tender documents which comply with such a clause, thus minimising the risk of a buyer turning a contractual pretext into a commercial advantage.

64 See, for example, GAFTA Form 100 clause 12(b).

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Documentary Sales on ‘Shipment Terms’

The Bill of Lading 1.26

At the centre of the bundle of documents – and at the centre of the web of contracts making up a documentary sale on shipment terms – lies the bill of lading. The bill of lading is central to international trade because it provides traders with three crucial facilities. First, on certain conditions being fulfilled, the bill of lading provides evidence of the contract of carriage and gives the buyer a valuable bundle of rights against the carrier of the goods: the right to demand delivery of the goods on discharge; the right to sue on clear contractual terms for loss of or damage to the goods; and the right to rely on firm statements about the quantity and condition of the goods on shipment. Secondly, a negotiable bill of lading (as opposed to a straight bill of lading) allows the buyer to sell the bill on and therefore speculate on the market while the goods are in transit. Thirdly, the bill of lading allows both parties to raise finance on the strength of the document itself. All three of these facilities are crucial to the smooth running of trade on shipment terms. Thus, first, the buyer could hardly be expected to part with the price against a piece of paper that did not give the buyer direct rights against the carrier. Secondly, international trade, particularly in commodities, is made at once less risky and more profitable by the use of a document that can be sold and bought while goods are still in transit. And finally, trade becomes more possible if banks can be persuaded to give credit on the strength of goods represented by a valuable document like a bill of lading.

LETTER OF CREDIT DESCRIBED Payment Risks 1.27

One of the main worries in an international sale – much more so than in a domestic sale – relates to payment. The seller is anxious not to go to the expense of manufacture, packing and shipment before they receive firm assurances, readily ascertainable and enforceable, that payment will be made. The buyer, for their part, is keen not to pay before and unless they are certain that goods and documents which conform with the sale contract have left the seller and are on their way to the buyer. Accordingly, the ability to raise credit on the strength of the bill of lading leads us to our third task in this chapter, namely to give a brief description of the way a letter of credit works65. The letter of credit reconciles the buyer’s and seller’s conflicting interests by concentrating entirely upon the negotiation of the 65 For a detailed examination of the law relating to letters of credit, the reader is referred to Jack, Documentary Credits, A Malek, D Quest (4th edn, 2009, Tottel), hereinafter referred to as ‘Jack’; and to Gutteridge and Megrah’s Law of Bankers’ Commercial Credits, R King (8th edn, 2001, Europa Publications, Taylor & Francis Group), hereinafter referred to as ‘Gutteridge and Megrah’. The object of the description given in the text above is limited to giving the background necessary for an understanding of the issues discussed later in this book.

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Letter of Credit Described

1.28

shipping documents between the seller and the buyer. Stated in its simplest terms, the letter of credit allows documents and money to move in opposite directions, giving the seller a reliable paymaster within the seller’s own jurisdiction and giving the buyer a documentary screening mechanism at the point where payment is made to the seller. Where a letter of credit is the payment mechanism chosen by the parties to the sale contract, the documentary aspect of the sale contract is at its strongest: payment of the price against conforming documents presented under the letter of credit alters the commercial dynamic between seller and buyer – and so long as the seller tenders the documents stipulated for in the letter of credit, the seller will get paid, leaving a buyer to recover damages for any physical losses from third parties, ie insurers and carriers.

The System at Work The system works as follows66: where the seller and buyer agree in the contract of sale on payment by letter of credit67, the buyer will instruct a bank, typically within the buyer’s jurisdiction, to open a credit in favour of the seller for the amount of the purchase price. The buyer’s bank – the issuing bank – will correspond with a bank in the seller’s jurisdiction, which bank will either advise the seller of the opening of the credit in their favour, or – much more valuable to the seller – confirm the credit opened by the issuing bank, that is to say, it will add its own undertaking to pay the purchase price. Payment is made on a presentation by the seller of complying shipping and other documents, ie a presentation which ‘is in accordance with the terms and conditions of the credit, the applicable provisions of [the UCP  600]68 and international standard banking practice’69. The documentary requirements of the letter of credit will have originated in the instructions given by the buyer to the issuing bank in the application for the credit. These instructions form the basis upon which the banks will act in this matter, and it is essential that the buyer ensures that they instruct the bank to pay on tender of precisely those documents which the seller and buyer agreed upon in the contract of sale: for once the instructions are given, the banks will follow those 66 The system works within a framework established in a set of rules issued by the ICC, the UCP for Documentary Credits, the current version of which was issued in 2006, came into force in 2007 and was published as publication 600 of the ICC. The rules are now consequently known as the UCP 600 and are incorporated as a matter of contract into most standard form letters of credit. A number of publications explaining the workings of the UCP 600 and interpreting the text of the rules and of their predecessors have been published by the ICC and can be obtained from National Branches of the ICC or from ICC Publishing in Paris at 33–43 ave du President Wilson, 75116 Paris, France. 67 The default position appears to be that the opening of the letter of credit is not a condition precedent to the existence of the contract of sale: Vitol SA v Conoil PLC [2009] 2 Lloyd’s Rep 466 at 16–18. It is submitted that it would take extremely clear words in the sale contract to make the existence of the sale contract depend on the opening of a letter of credit. It is equally clear, however, that the seller is not obliged to ship goods without a letter of credit in place: see Kolmar Group AG v Traxpo [2010] 2 Lloyd’s Rep 653. 68 Where the UCP 600 are incorporated into the letter of credit. 69 See UCP 600 art 2.

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Documentary Sales on ‘Shipment Terms’

instructions rather than the documentary requirements of the contract of sale, to which the banks are not party, the letter of credit operating quite independently of the contract for the sale of goods underlying it70. Consequently, if a letter of credit contains different documentary stipulations to those originally contained in the sale contract, the seller will, as the beneficiary under the letter of credit, only get paid by the bank if they tender documents which comply with the stipulations in the letter of credit, the paying bank not being privy to the contract of sale and operating only under the terms in the letter of credit. A seller would be well-advised, therefore, on receiving the letter of credit, to scrutinise its documentary stipulations carefully in order to see whether any documentary traps have been laid for the seller through an overlay of documentary stipulations that might delay payment or make it more difficult. Thus, for example, if a sale contract requires a certificate of quality signed by one surveyor but the letter of credit requires two surveyors’ signatures, tender of a certificate bearing one signature will not comply with the requirements under the letter of credit. Moreover, had the discrepancy between the two contracts been noticed and objected to by the buyer at the time the letter of credit was received, the seller would have been entitled to insist on the issue of a letter of credit that complied with the documentary requirements of the sale contract71. Indeed, sellers in a strong bargaining position vis-à-vis their buyer will on occasion draft the letter of credit themselves in order to make sure that its documentary requirements do indeed tally with those of the sale contract so as to minimise the chance of documentary difficulties with the bank at the time of tender. On shipping the goods, the seller tenders the full bundle of documents to the advising or confirming bank, which examines the bundle to make sure that the documents comply with the letter of credit. If they do, the seller is paid by the bank and the documents are passed down the line, as it were, to the buyer, who will either have already put the issuing bank in funds, or, if not, will pay that bank either then, against the documents, or later, under a trust receipt72. What do the banks receive in return for this service? Other than custom and commissions, the banks will physically hold the documents including the bill of lading, which will typically be pledged to them in the application by the buyer for the opening of the letter of credit. At the very least, the simple fact that the bank holds the bill of lading will prevent the buyer, pending payment of the sum due to the bank under the letter of credit, from having the benefit of the status of ‘lawful holder of the bill of lading’ under the COGSA 1992, a status necessary, as we shall see in Chapters 2 and 4, for the transfer to the buyer of contractual rights against the carrier. At most, and again as we shall see in the same chapters, the bank will, in certain circumstances, have that status itself, with direct rights against the carrier. Thus, here too, we see the bill of lading, and the commercial functions 70 See UCP 600 art 4(a). 71 See Benjamin, paras 23–048, 23–049 and cases cited at footnote 159 thereto. 72 See Chapter 4.

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Identifying the Terms of the Contract of Sale

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it performs in the context of trade finance, at the centre of a mechanism which is essential to the smooth progress of international trade.

IDENTIFYING THE TERMS OF THE CONTRACT OF SALE Significance of This Question In the rough and tumble of international trade transactions, particularly those involving commodities, it may not always be clear what the terms of the contract are. ‘The contract’ is not always set out in one identifiable document, but is to be gleaned from correspondence expressed in the laconic and technical language which used to characterise faxes73 and now e-mails.

1.29

Where the transaction is uneventfully performed, the identification of the precise terms of the contract hardly matters. However, where there is a dispute, the starting point has to be to discover the terms upon which the parties contracted. Each party to the dispute now looks to the dated and desultory exchange of correspondence in search of the strongest remedy or the quickest defence. Moreover, these exchanges may themselves refer to other documents, like charterparties, in-house general terms and conditions, contracts previously entered into between the parties, standard form contracts and rules issued by trade associations74, to whose contents little thought may have been given at the time the contract was negotiated. All these documents are now subjected to the closest, if belated, scrutiny75. The plaintiff searches for a term making the defendant’s conduct causing the plaintiff’s loss a breach of contract. The defendant seeks the quickest and cheapest escape from the dispute: a time-bar or a choice of forum clause constraining the arbitrator or judge to throw the claim out or, failing that, a damages clause limiting or liquidating damages to such a low level as to make the costs of pursuing the claim hardly worthwhile.

The Parties’ Objective Intentions: Is There a Contract and on What Terms? In the midst of this unholy scramble by the parties for the most helpful term, the judge or arbitrator needs somehow to discover, on the basis of predictable 73 For a contract particularly striking for its troublesome conciseness, see Johnson Matthey Bankers Ltd v The State Trading Corporation of India Ltd [1984] 1 LR 427 at 430. 74 Major examples would be the standard forms drafted and published by the Grain and Feed Trade Association (GAFTA) and by the Federation of Oils, Seeds and Fats Association Ltd (FOSFA). Current versions of these contracts are obtainable from the two associations, whose addresses are, respectively, GAFTA House, 9 Lincoln’s Inn Fields, London WC2A 3BP, and FOSFA, 4–6 Throgmorton Avenue, London EC2N 2DL. 75 See Morris J in Societe Co-operative Suisse des Cereales et Matieres Fourrageres v La Plata Cereal Company SA (1947) 80 Ll LR 530 at 538: ‘The problems of construction of the contractual documents are not easy of solution and I doubt whether the parties gave to the compilation of these documents one hundredth part of the thought which has been devoted to their explanation’.

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and rational criteria, what the contract means. The objective is simply enough stated: to construe the objective intention of the parties at the time the contract was concluded. However, the search for that answer is bedevilled by the fact that parties in dispute will now give differing accounts as to the objective meaning of the contract, even perhaps as to whether there is a contract at all. Clear principles for the resolution of these difficulties have been developed by the general law of contract and these principles are well set out in more general works76. Suffice it here to state the basic rule, which is that for there to be a contract, identified or identifiable terms offered by one party must have been accepted by the other. This fundamental rule may need to be handled sensitively in the context of the negotiations leading to a commodity transaction. Thus, in Pagnan SpA v Feed Products Ltd77, Bingham J, as he then was, said: ‘I think, furthermore, that the Court must bear constantly in mind the subject matter with which it is dealing. The relevant principles of the law of contract are, no doubt, of universal application, but the proper inference to draw may differ widely according to the facts of the particular case. One case may concern a protracted negotiation, perhaps conducted in writing through lawyers, between parties who have had no dealings of any kind before. Another may concern a series of quick-fire exchanges between professionals, both of them practitioners of the same trade, both having had many previous dealings, and with a wide measure of common experience, knowledge, language and understanding between them. One could not sensibly approach these cases in the same way. Inferences which it would be appropriate to draw in one case might be quite inappropriate in the other. But the Court’s task remains essentially the same: to discern and give effect to the objective intentions of the parties.’ A characteristic feature of most negotiations leading to an export transaction, at any rate of commodities, is that they are conducted rapidly and under pressure of time by trade professionals, frequently with the basics of a contract concluded, leaving details to be hammered out in what Bingham J called in the extract cited above ‘quick-fire exchanges’, exchanges which have, if anything, given the use of e-mails since the time Pagnan was decided, become even more quick-fire. Those

76 See Chitty at Part 4, Chapter 13, Section 3. 77 [1987] 2 Lloyd’s Rep 601, at 611, a judgment confirmed by the Court of Appeal in the same report; considered and approved of more recently in Metal Scrap Trade Corporation v Kate Shipping Co Ltd, The Gladys No 2 [1994] 2 Lloyd’s Rep 402 at 407–408; Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd [2012] BLR 364.

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considerations persuaded Aikens J, in Statoil v Louis Dreyfus, The Harriette N78, to state, on the back of Pagnan, that79: ‘[i]f the principal terms have been agreed and the parties are, to use Bingham J’s phrase in the Pagnan case, “sorting out details against the background of a concluded contract”, then the strict requirements of positive offer and positive acceptance are not necessarily appropriate. If one party makes a proposal for terms and the other does not object to it when asked if it has objections, that can, in appropriate circumstances, be taken as acceptance of that term: Pagnan at page 614 per Bingham J.’ A tribunal’s search for the parties’ intention is further complicated in this field by the virtually universal reference by the parties, whether in their final confirmation notes or in the negotiations leading thereto, to standard forms or other contracts with which they are or believe themselves or each other to be familiar. Consequently, we shall be concentrating in the rest of this chapter on two specific issues that frequently arise in the practice of international trade. These are the problems that arise when parties seek to incorporate terms into their contracts from background documents, and from the status and incorporation of Incoterms 2020. This can be complicated by the fact that the parties may refer, either explicitly or implicitly, to different editions of Incoterms which have historically delimited risks and obligations as between the seller and buyer differently.

(a)  Incorporation of Terms It is increasingly common, given the sheer volume and speed of the international markets, for deals to be closed on the barest of terms explicitly agreed but on the basis that other terms are incorporated into the contract. The terms which the parties seek to incorporate may come from a wide variety of sources: earlier correspondence between the parties, in-house standard terms, trade association terms and rules, earlier contracts between the parties, or even other contracts between one of the parties and a third party, like charterparties or letters of credit.

1.31

Risks of Incorporation The practice of incorporation of terms into the sale contract from another document is as frequent as its risks are clear. Incorporation may lead to uncertainty, and to unwelcome surprises both for the party who suggested the incorporation 78 [2008] 2 Lloyd’s Rep 685 at [70]. This aspect of the case related to e-mail exchanges relevant to the issue as to whether a time-bar had been agreed between the parties applicable to demurrage claims. For a similar scramble for a quick exit on the basis of a time-bar, unsuccessful because the time-bar depended on incorporation of a charterparty clause into a sale contract, see Glencore v Sonol [2011] 2 Lloyd’s Rep 697. See also Petroplus Marketing AG v Shell Trading International Ltd (The ‘Ninae’) [2009] 2 Lloyd’s Rep 611 at 614 Col.1. 79 This does not mean that the traditional analysis of offer and acceptance can be totally discarded when seeking to identify whether a contract has been concluded and on what material terms: see Sterling Hydraulics v Dichtomatik [2007] 1 Lloyd’s Rep 8 at [17] to [21].

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Documentary Sales on ‘Shipment Terms’

and for the counterparty: it is, however, a universal practice, given the speed at which deals are struck against the background of volatile commodity markets and the pressures caused by related markets, that is to say the freight and insurance markets. It is precisely because of these pressures and the resulting speed at which deals are struck that careful drafting and a close familiarity with the terms of documents incorporated are needed to avoid unwelcome surprises when a dispute later arises. Thus, the incorporation clause should make absolutely clear the precise terms to be incorporated80. For example, a clause incorporating ‘force majeure as per GAFTA 24’ is likely to cause trouble, given that GAFTA Form No 24 does not have a clause explicitly termed a force majeure clause. Again, a party seeking to incorporate terms from another document needs to work out and assess the precise consequences of incorporation, particularly where the incorporating clause seeks to incorporate the entire document. For example, while the complete incorporation of FOSFA Form No 54 into a sale contract may save much time and effort during negotiations, the seller needs to be aware that this form imposes significant obligations regarding the type of vessel upon which the goods will be carried81.

Rules as to Incorporation 1.33

Clear drafting of incorporating clauses and careful selection of incorporated terms are both, however, counsels of perfection and disputes frequently arise requiring resolution by arbitrators or the courts. The courts have developed fairly well-settled rules for the incorporation of terms from standard forms into contracts82 and we shall here be concentrating on three questions of particular relevance to contracts for the international sale of goods. First, what are the criteria used by the courts for incorporation? Secondly, what if the incorporated document contains a term inconsistent with the negotiated terms? Thirdly, can a contract incorporate a term from a document which itself forms part of another contract not yet concluded?

General Criteria for Incorporation 1.34

Stated briefly, the general criterion established for incorporation is that the party seeking to incorporate the standard form must prove that the other party was given reasonable notice of the terms of the form by a reference thereto in a contractual document prior to or at the same time of the conclusion of the contract83. This general statement is subject to three caveats. First, where the counterparty has signed the standard form, there is no requirement of reasonable 80 For an example of costly litigation caused by uncertainty as to incorporation, see Johnson Matthey Bankers Ltd v The State Trading Corporation of India Ltd [1984] 1 Lloyd’s Rep 427, 430–434. 81 See FOSFA 54 lines 30–32: the vessel engaged by the seller must comply with stipulated FOSFA qualifications and operational procedures for ships engaged in the carriage of oil and fats in bulk. 82 For a detailed account of these rules, see Chitty, paras 13–008 to 13–018. 83 Ibid.

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1.35

notice84. Secondly, neither is there such a requirement where the standard form is incorporated through course of dealing, so long as the form is in common use and is not unusually onerous85. Thirdly, where reasonable notice is required, the more unusual or onerous the incorporated term, the greater is the degree of notice required86.

The General Criteria and International Trade There is no reason to doubt that these general criteria for incorporation are as applicable to contracts for the international sale of goods as they are to other types of contract. Two points special to international sales are worth making, however, in this regard. First, it is more likely than not that the blandest of references to a standard form in a document forming part of the contract will satisfy the requirement of reasonable notice87: commodity markets are not likely to attract the same type of substantive judicial intervention as that exhibited in cases such as Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd88. This does not mean, however, that incorporation of standard terms in international sales will necessarily be any easier than it is in other contracts. International trading contracts work in close proximity to contracts for the carriage of goods by sea. Indeed, in some instances, sale contracts seek to incorporate terms not from a standard form of sale, but from a standard form for a contract of carriage like a charterparty. Given the connection between these contracts, it is not surprising that rules of incorporation developed in the context of the law of carriage may be of relevance to issues of incorporation in trading contracts. Thus, in OK Petroleum AB v Vitol Energy SA89, a case which turned on the incorporation of a time-bar from a charterparty into a sale contract, Colman J found of ‘some assistance’90

84 L’Estrange v F Graucob Ltd [1934] 2 KB 394. 85 Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427, at 433; distinguished in Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep 388 at 392–393. 86 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1  All ER  348; AEG (UK) Ltd v Logic Resource Ltd [1996]  CLC  263; see in particular, in the context of the incorporation of arbitration clauses, Habas Sinai v Sometal [2010] 1 Lloyd’s Rep 661 and Kaye v Nu Skin UK [2011] 1 Lloyd’s Rep 40. 87 Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427; Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, at 612–613. 88 [1988] 1 All ER 348. An unsigned delivery note for transparencies contained a term imposing an onerous charge for every day of delay in re-delivery. Held that the charge could not be levied because the supplier had not given the hirer reasonable notice of the clause. 89 [1995] 2 Lloyd’s Rep 160. See also, in the context of a construction contract, Extrudakerb (Maltby Engineering) Ltd v White Mountain Quarries Ltd [1996] CLC 1747. 90 See page 165. Colman J was careful to point out that the analogy between the incorporation of charterparty terms into bills of lading and the incorporation of standard form terms into sale contracts could not be taken too far, given the different commercial contexts in which these issues arose: see particularly page 163.

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Documentary Sales on ‘Shipment Terms’

the well-developed rules governing the incorporation of charterparty terms into bills of lading. We shall scrutinise these rules at a later stage91, but suffice it here to summarise them and to suggest the practical effect of their application to trading contracts. Charterparty clauses are incorporated into bills of lading if three conditions are satisfied: first, that the bill of lading incorporation clause aptly describes the charterparty clause sought to be incorporated and that general terms of incorporation will only prima facie incorporate charterparty terms germane to the subject matter of the bill of lading contract; secondly, that the charterparty clause is intelligible within the context of the bill of lading, or at least can be made so with a limited degree of manipulation; third, that the charterparty clause is consistent with the other clauses in the bill of lading92. We shall see presently that the third of these rules adds nothing to the generally applicable rules of incorporation. However, if judges and arbitrators were to require incorporation clauses in trading contracts to satisfy the first two requirements necessary for the incorporation of charterparty terms into bills of lading, what might be the practical effect on the construction and, consequently, on the drafting of such clauses? Would the courts look to see whether the words of incorporation in the trading contracts were apt to describe the term in the standard form now sought to be incorporated? Would general terms of incorporation in the sale contract be sufficient to incorporate arbitration clauses93 or even time-bars from charterparties94? And would that term only be incorporated if it could be accommodated within the special conditions agreed with minimal manipulation? If these questions were answered positively, then incorporation of standard terms in international sales might be more difficult to achieve than initially thought by

91 See paras 8.14 to 8.18. 92 Scrutton on Charterparties and Bills of Lading, B Eder, H Bennett, S Berry, D Foxton and C Smith, eds (23rd edn, 2017, Sweet & Maxwell) (hereinafter referred to as ‘Scrutton’), article 54. 93 This consideration clearly weighed heavily with Carswell LJ in Extrudakerb (Maltby Engineering) Ltd v White Mountain Quarries Ltd [1996] CLC 1747, where an arbitration clause was held to be incorporated into a construction subcontract through a general reference to a standard form containing the arbitration clause. Extensive reference was made to a number of shipping cases, Carswell LJ highlighting dicta in those cases showing that arbitration clauses could, in appropriate circumstances, be incorporated from charterparties into bills of lading through general terms of incorporation. 94 This was the result in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyds Rep 160 where, after early warnings against too close an analogy being drawn between the incorporation of charterparty clauses into bills of lading and their incorporation into sale contracts, Colman J  decided that a charterparty time-bar was not effectively incorporated into a sale contract through a general incorporation clause because it was not germane to the subject matter of the sale contract: see page 168 of the report. See also Navigas Ltd of Gibraltar v Enron Liquid Fuels Inc [1997] 2 Lloyd’s Rep 759.

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1.36

contracting parties95. The practical result might then be that trading parties would need to exercise greater care in drafting such incorporation clauses so as to ensure that standard terms they wished to incorporate were either adequately described in the incorporation clause or explicitly transplanted into the trading contract. It is suggested that transplanting the test(s) for incorporation of charterparty terms into bills of lading, into the associated but separate terrain occupied by international sale contracts, would be to raise the bar for incorporation too high. There is good reason for setting that bar high when seeking to incorporate clauses from a charterparty into a bill of lading. As we shall see in Chapter 8, that reason is the transferability of bills of lading: given that third party endorsees of bills of lading might be caught out by clauses incorporated into those bills of lading from charterparties which they know nothing of, the courts do well to put obstacles in front of too relaxed an incorporation of charterparty clauses into bills of lading. That reasoning simply does not apply in international sale contracts, where parties are known to each other and familiar with many of the standard forms which are typically incorporated into sale contracts in their trade.

Inconsistencies Between Standard Terms and Special Terms Given the variety of standard documents from which parties may seek to incorporate terms into their trading contracts, it is not uncommon for there to be a discrepancy between the different parts of the mosaic making up the contract. The courts have developed clear rules for the resolution of inconsistencies96 between terms in incorporated standard forms and special terms agreed between the parties. It is clear that where the parties have taken the trouble to resolve any inconsistencies themselves, by expressly establishing a hierarchy between one part of the contract and another, then the courts will give effect to the parties’ intention and allow the source preferred by the parties, be it the standard form or a special condition, to prevail97.

95 For an illustration of judicial reluctance to incorporate, see The Northern Progress [1996] 2 Lloyd’s Rep 319, particularly at 330, where Rix J elides the three rules developed by the courts in the context of bills of lading and charterparties into an explicitly articulated test of ‘rationality or commercial common sense’. In that case, the clause sought to be incorporated, seeking to allow the sellers, who were also charterers, to have the goods discharged at a place other than the CIF destination in the sale contract, was not effectively incorporated because it was unreasonable and because it ‘[flew] in the face of commercial commonsense’. 96 Defining an ‘inconsistency’ is not without its own difficulties: see Pagnan SpA  v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342 in which, after much discussion of earlier authorities, Bingham LJ, as he then was, stated at page 350: ‘It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses’. 97 See Pagnan SpA  v Tradax Ocean Transportation SA  [1987] 2 Lloyd’s Rep 342, per Bingham LJ at 349 and Woolf LJ at 352, where Lord Justice Woolf recommended that, where standard terms and special conditions were used, the parties should resolve conflict by expressly establishing a hierarchy between the standard form and the special agreement of the parties.

27

1.36

1.37

Documentary Sales on ‘Shipment Terms’

Where there is no express clause in the contract establishing a hierarchy between standard terms and special conditions, then it is clear that the special conditions will prevail. Thus, in Indian Oil Corporation v Vanol Inc98, where a conflict arose between a specially agreed term as to choice of law and jurisdiction and standard terms regarding the same matters, it was held that the special terms prevailed. At times, however, the conflict may arise not between the specially concluded terms and incorporated terms but between terms incorporated from different documents. Thus, a trading contract may seek to incorporate terms from a standard trade association form and those contained in another contract concluded between the parties. How is a court to resolve the inconsistency between two terms, both of which have been incorporated? The courts will attempt to reconcile inconsistencies, if necessary by construing the two terms differently such that both can co-exist in the contract. Thus, in Sabah Flour and Feedmills SDN BHD v Comfez Ltd99, a potential conflict arose between a six-month time-bar contained in a standard charterparty form which was incorporated into the fixture document constituting the contract, and the one-year time-bar for cargo claims contained in the Australian Sea Carriage of Goods Act 1924, which was itself incorporated in the incorporated charter form. The Court of Appeal held that both time-bars applied: the one-year time-bar applied to cargo claims and the six-month time-bar applied to other claims. This accords with the general principle of contractual interpretation, which is that, where possible, the courts will attempt to construe two clauses so that they both remain applicable, rather than having to choose between them100.

Incorporation From Contracts Not Yet Concluded 1.37

Where an entire vessel is required for the transit of the goods, it is possible that the charterparty will only be fixed after the trading contract. Thus, on occasion, the sale contract may seek to incorporate a term from the standard form of a charterparty yet to be concluded. In these circumstances, can the parties to the trading contract truly be said to have intended to incorporate terms from the charterparty, given that that contract has not yet been concluded? Money may turn on this issue if, for example, the charterparty clause which one of the parties to the sale contract seeks to incorporate is a demurrage clause or a time-bar. The position is not clear, with four judgments in a court of first instance and one in the Court of Appeal appearing to point in different directions. On the one hand, in Gill & Duffus v Rionda101, Clarke J  held that a sale contract could effectively incorporate a clause from a charterparty which had not yet been 98 [1991] 2 Lloyd’s Rep 634, reversed on other grounds at [1992] 2 Lloyd’s Rep 563. 99 [1988] 2 Lloyd’s Rep 18. Followed in M.H. Progress Lines SA v Orient Shipping Rotterdam BV & Ors [2012] 1 Lloyd’s Rep 222 at 227 Col. 2. See, in like vein, The Leonidas [2001] 1 Lloyd’s Rep 533 at 536. 100 Yien Yieh Commercial Bank Ltd v Kwai Chung Cold Storage Co Ltd [1989] 2 HKLR 639, PC. See also The Interpretation of Contracts. 6th edn at 9.13. 101 [1994] 2 Lloyd’s Rep 67.

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1.38

drawn up, so long as the charter had been fixed on clear terms102. In the Northern Progress103, Rix J expressed the view that, despite possible theoretical difficulties, to hold that a sale contract could not incorporate clauses from a charterparty yet to be concluded would simply fail to coincide with commercial practice and expectations104. A similar attitude was taken in the Court of Appeal decision in the Epsilon Rosa105, where an arbitration clause was held to have been incorporated into a bill of lading from a recap telex for a charterparty not yet drawn up. However, in OK Petroleum AB v Vitol Energy SA106, Colman J suggested obiter that incorporation cannot be effective ‘where the incorporated contract does not exist when the incorporating contract is entered into’107. Finally, in a similar vein though in a slightly different context, Judge Anthony Diamond QC held that where a bill of lading seeks to incorporate terms from a charterparty which, although fixed, may not yet have been drawn up in writing, the bill of lading could not incorporate terms from the fixture: the Heidberg108, a case distinguished in the Epsilon Rosa on the basis that in Heidberg the charterparty from which a term was sought to be incorporated had only been agreed orally and its terms were not, therefore, easily ascertainable109. In the light of these conflicting decisions, the safest practical advice seems to be that in trades where particular standard charterparties are used, and where it is in the trader-charterer’s interest that certain charterparty terms are incorporated into the sale contract, such terms should be specifically entered as special conditions in the contract of sale itself. Failing this, terms from charterparties not yet drawn up may, on the current state of the authorities, only be incorporated into a sale contract if such terms are sufficiently ascertainable.

(b)  Incoterms 2020 and Their Incorporation The mere use of the letters CIF or FOB in the special conditions or in a standard form incorporated into the contract by the parties will not have the automatic effect of incorporating the relevant term in Incoterms 2020 into the contract (although the courts are still likely to apply the interpretation of that particular Incoterm [eg CIF] under the applicable law of the contract). Much less will the use of the 102 The phrase used by Clarke J  was ‘[p]rovided that the charterparty concerned was a genuine commercial arrangement’: see page 73 of the report. 103 [1996] 2 Lloyd’s Rep 319. 104 See, in particular, pp 326–328. Rix J went on to hold, however, against incorporation: see fn 95 above. 105 [2003] 2 Lloyd’s Rep 509. 106 [1995] 2 Lloyd’s Rep 160, referred to in Glencore Energy v Sonol Israel [2011] 2 Lloyd’s Rep 697 at [25]. 107 It will be recalled that the ratio of this case was that the time-bar sought to be incorporated from the charterparty into the sale contract was not germane to the subject matter of the sale contract and could not, therefore, be incorporated through general words on incorporation in that contract: see fn 94 above. 108 [1994] 2 Lloyd’s Rep 287, particularly at 310–311. 109 [2003] 2 Lloyd’s Rep 509 at 514–5.

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Documentary Sales on ‘Shipment Terms’

letters CFR have the effect of incorporating into the contract the counterpart in Incoterms 2020 of the C&F  term. Accordingly, where parties wish to have their trading contract governed by Incoterms 2020, they should make it explicit in their contract that they intend Incoterms 2020110 to apply. Where the contract makes use of letters with direct equivalents in Incoterms 2020 and also expressly incorporates Incoterms 2020, then it is suggested that this makes it clear enough that a particular term in Incoterms 2020 is intended to apply. Thus, where the contract is concluded on ‘c.i.f. terms, Incoterms 2020 to apply’, it is suggested that this should be taken to mean that the parties intend the CIF term in Incoterms 2020 to be incorporated into their contract. Nonetheless, the clearest manner in which parties can express their intention as to the applicability of Incoterms is to state in their special contract that ‘Incoterms 2020, CIF, to apply to this contract’ or words to that effect111. Finally, care should be taken to incorporate from Incoterms 2020 the term appropriate to the means of transport which the parties intend to use112. We have already seen that Incoterms 2020 divides 11 terms into two families, the first appropriate where either the point of delivery or the destination is inland, and the second appropriate where both those points are ports. Selecting a term from one family of terms where the other is appropriate is likely to lead to unnecessary complications. Thus, for example, to sell on CIF terms, Incoterms 2020 incorporated, naming an inland depot as the destination of the goods may cause confusion as to the precise allocation of risk and expense, confusion which is costly and unnecessary, given that Incoterms 2020 contain a term, the CIP term113, which applies the basic allocation of the duties and payments under the CIF term where an inland point is used for delivery or destination.

110 Should the contract refer only to Incoterms without specifying the version incorporated as that published in 2020, the presumption in English law would appear to be that the parties intend to incorporate the version in force at the time of the conclusion of the contract: Smith v South Wales Switchgear Ltd [1978] 1 WLR 165. 111 The ICC’s Introduction to Incoterms advises that the parties’ intention to apply Incoterms should be made clear in the contract through such words as ‘[the chosen Incoterms rule] [named port, place or point] Incoterms 2020’. 112 In this regard, see Zenziper Grains and Feed Stuffs v Bulk Trading Corp Ltd [2000] EWCA Civ 307, where the Court of Appeal found of ‘no worthwhile assistance’ arguments drawn by analogy from the FCA and DDP terms in Incoterms 1990 in resolving a dispute arising out of a contract concluded on FOT terms (free on truck), a term not defined in Incoterms 1990. 113 Carriage and insurance paid to named place of destination.

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Chapter 2

The Buyer Obtains the Right to Delivery of the Goods Through Specific Types of Document

A FRAMEWORK OF QUESTIONS – AND CONCEPTS 2.1 THE RIGHT TO DELIVERY OF THE GOODS UNDER COGSA 1992 2.7 (a) Bills of Lading 2.10 (b) Switch Bills of Lading 2.26 (c) Spent Bills of Lading 2.29 (d) Sea Waybills and Straight Bills of Lading 2.32 (e) Delivery Orders 2.46 (f) Multimodal Transport Documents 2.50 COMPETING CLAIMANTS TO DELIVERY 2.53 (a) Unpaid Sellers and Their Rights of Stoppage in Transit 2.54 (b) Banks 2.61 (c) Holders of Other Originals in a Set of Bills of Lading 2.67

A FRAMEWORK OF QUESTIONS – AND CONCEPTS The Significance of Documents in International Trade In Chapter  1, we looked at the physical aspects of a sale of goods carried by sea. However, the documents are at least as important in international sales as the goods. We saw at paragraph 1.26 above that one document in particular was crucial to the smooth running of international trade, the bill of lading. This is true for at least three reasons. First, traders make valuable use of goods in transit by selling documents representing the goods, rather than leaving goods inert in the hold of a ship. Secondly, we saw at paragraph  1.27 above that the bill of lading plays a central part in letters of credit, with credit being extended by the buyer’s bank to the seller’s bank in exchange for the bills of lading, or other similar document. Finally, the bill of lading protects the buyer on shipment terms against loss or damage in transit by giving them rights against the carrier. So central are the actual documents in international trade – and the bill of lading in particular – that we saw at paragraph 1.9 above that contracts on shipment terms can be regarded as sales of goods covered by documents. 31

2.1

2.2   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document

The Bill of Lading as a ‘Document of Title’ 2.2

What is it about the bill of lading that makes it so central to the various contracts making up an international trade transaction? The answer traditionally given is that the bill of lading is a ‘document of title’, but what exactly does this mean? Given the importance of the document, there is surprisingly little agreement about what ‘title’ the bill of lading actually represents and the latest edition of Benjamin is driven to the conclusion that ‘[T]here is no authoritative definition of “document of title to goods” at common law’1. It is the word ‘title’ which causes difficulty: does it mean that the holder of the document owns the property interest in the goods; that they are entitled to ask for their delivery; that they have a right to give the carrier instructions as to their delivery; that they can pass one or all of these rights to others by transferring the document; that they have title to sue the carrier if they are damaged in transit; that their rights, whatever they may be, survive a defect in the rights of the seller? The short answer is that the phrase ‘document of title’ is typically – and somewhat confusingly – used to mean any number of these quite different concerns. Nowhere are the dangers of attempting to encapsulate diverse legal concepts under one convenient label more clearly to be found than in the following extract from Lord Justice Bowen’s judgment in the Court of Appeal’s decision in Sanders Brothers v Maclean & Co2: ‘A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During [the] period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass, just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to someone rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner. It is 1 2

Benjamin, para 18–007; see also Goode on Proprietary Rights and Insolvency in Sales Transactions, S Mills, Sir R Goode, eds (3rd edn, 2009, Sweet & Maxwell) (hereinafter referred to as ‘Goode Proprietary Rights’). (1883) 11  QBD  327 at 341. To be fair to Lord Justice Bowen, though, it should be said that, barely a year later, he implicitly refined what he had said in Sanders v Maclean, dissenting in the Court of Appeal in Sewell v Burdick (1884) 13 QBD 159 at 170–175, in a judgment which was then vindicated by the House of Lords at (1884) 10 AC 74. See, in this regard, The Rafaela S [2005] 1 Lloyd’s Rep 347 at 364, para 69, per Lord Rodger who comments on the tension between the terms of Bill of Lading Act 1855 s 1 and the doctrine that transfer of the bill of lading would always transfer property in the goods.

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A Framework of Questions – and Concepts

2.3

a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be.’

What the Phrase ‘Document of Title’ Means in the Literature The chameleon-like usage of the phrase ‘document of title’ can be illustrated through a brief review of the literature and the discussion in Sassoon is the most obviously symptomatic of the many meanings concealed in the phrase. The editors write3: ‘The seller under a c.i.f. contract must ship goods of the contract description and procure the shipping documents as agreed in the sale contract for tender to the buyer. Unless the contract provides otherwise, tender of an order bill of lading is always required for three reasons: first, such a bill of lading enables the buyer or its agent to obtain physical delivery of the goods on their arrival at the port of discharge; secondly, possession of the bill of lading amounts to constructive possession of the goods, and transfer of the bill of lading to the buyer or to a third party may (if so intended), have the effect of passing title in the goods to such person. This characteristic has the added benefit of enabling the lawful holder of the document to obtain credit from finance institutions before the actual arrival of the goods, as the bill can be given in pledge as security. Thirdly, it is by virtue of the bill of lading that they buyer or its assignee can obtain redress against the carrier for any breach of its terms and of the contract of carriage evidenced therein. In other words, possession of the bill of lading creates privity between its holder and the contractual carrier, as if the contract were originally made between them.’ Several concepts are in play here: (1) the right to claim delivery; (2) the power to transfer that right, property, whether by way of ownership or security; and (3) finally, the right to sue the carrier on a contract of carriage concluded by the seller. Aikens, Lord and Bools, on the other hand, concentrate on the right of the holder to demand possession4: ‘The ocean bill of lading is the only document of title to goods at common law presently recognised under the English common law. As such, the transfer of a bill of lading is capable of transferring to the transferee the symbolic possession of the goods.’

3 4

See Sassoon, para 5–001. Aikens, Lord and Bools, Bills of Lading (2nd ed, 2016, Informa) at para 6.2 (hereinafter referred to as ‘Aikens’).

33

2.3

2.4   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document Finally, Benjamin, overcoming an initial hesitation, constructs a definition comprising both notions of the right to demand possession of the goods and of property5: ‘a document the transfer of which operates as a transfer of the constructive possession of the goods covered by the document, and may operate, if so intended, as a transfer of the property in them.’

There is a Loose Consensus on a Definition of the Phrase ‘Document of Title’ 2.4

Unanimity, then, on a definition of a ‘document of title’ is difficult, but it does seem broadly to encapsulate three main concepts: (1) it can represent the symbolic possession of the goods; (2) it can represent ownership of the goods; and (3) it can, sometimes, create privity between the holder of the document and the carrier. Because of the identified benefits of documents of title, there are a number of practical issues turning on whether a particular shipping document is or is not a document of title; be it a bill of lading6, a sea waybill, a container transport document, a so-called ‘through’ bill of lading, or, finally, an electronic substitute for any of these documents. Thus, for example, the seller’s performance of their documentary obligations may depend, whether by contract or commercial custom, on the tender of a ‘negotiable’ bill of lading. Again, a bank’s readiness to open and to pay under a letter of credit will depend in part on whether the document ‘of title’ tendered by the seller gives it adequate security against non-payment by the buyer. Moreover, whether the relationship between a cargo-interest and a carrier is regulated by COGSA 1971 (which brought the Hague-Visby Rules into force in English law) may depend on whether the document issued by the carrier is a ‘bill of lading or similar document of title’7. It is important, therefore, to identify the constituent features of a ‘document of title’.

A Functional Search for a Definition 2.5

In identifying the main practical functions of a bill of lading, it may help to isolate the functions which traders expect a bill of lading to fulfil – and the main questions which their advisers expect the document to answer. These can be summarised as follows:

5

6 7

Benjamin, para 18–007; see Sir G Treitel, F M B Reynolds, Carver on Bills of Lading (4th edn, 2017, Sweet & Maxwell) (hereinafter referred to as ‘Carver on Bills of Lading’), at para 6.002. See also Bell Modern Law of Personal Property in England and Ireland (1989) at p 59 where possession of the document of title is said to be equivalent to ‘constructive possession of the property itself ’. Whether made out ‘to order’ or not (in the latter case, a so-called ‘straight’ bill of lading). COGSA 1971 Sch art I(e); an issue which exercised many judicial minds in The Rafaela S [2005] 1 Lloyd’s Rep 347 HL.

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(a)

The Right to Delivery of the Goods Under COGSA 1992

2.7

Does the buyer: (i) have a right to claim physical delivery of the goods from the carrier? And, if so (ii) can they only exercise that right by presenting the bill of lading to the carrier?

(b) Does the buyer have the power to pass the right to claim delivery of the goods from the carrier to another buyer by transferring the bill of lading? (c)

If the goods reach the buyer in a damaged state, or in a smaller quantity than that stated to have been shipped, or fail to reach the buyer at all: (i) does the buyer have a remedy against the seller; or (ii) does the buyer have to rely on any rights they may have: – against the carrier in contract, tort or bailment; and/or – against the insurer on the insurance policy?

(d)

If either the seller or the buyer becomes insolvent, who owns the goods, such that they can be isolated from the claims of the insolvent’s creditors?

Concepts Behind These Questions and Their Context In this chapter, we shall deal with points: (a)(i) and (a)(ii) above, namely: (i)

who has the right to claim physical delivery of the goods from the carrier; and

(ii)

does that right always depends on presentation of the bill of lading to the carrier?

2.6

COGSA 1992 is now the primary source for the answer to these two questions. In Chapter 3, we shall consider point (b) and clarify in what circumstances the buyer has the power to transfer the right to claim delivery of the goods from the carrier. In Chapter 4, we shall deal with the various issues involved in point (c): if the goods are lost or damaged in transit, can the buyer sue the seller or the carrier? In terms of legal concepts, these questions turn on the transfer of risk and title to sue. Finally, in Chapter 5, we shall be looking at the passing of property in sold goods carried by sea.

THE RIGHT TO DELIVERY OF THE GOODS UNDER COGSA 1992 Buyers and carriers face two separate but related questions relating to the goods carried by sea. The first question is: does the buyer of goods have a right to ask the carrier for physical delivery of the goods? The second question is: if, on claiming delivery of the goods, they were delivered late; or the goods are found to have been lost – or, on taking delivery of the goods, they are found to have been 35

2.7

2.8   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document damaged or short-delivered – does the buyer have a right to sue the carrier on (and the carrier the right to defend themselves by) the terms of the contract of carriage contained in the bill of lading issued by the carrier to the seller of the goods (but not the buyer)? The first could be termed the ‘delivery’ question and the second the ‘privity’ question. 2.8

Before COGSA  1992, the Bills of Lading Act 1855 (BLA  1855) bridged the privity of contract gap between the buyer of goods and the carrier for goods covered by bills of lading, but not other similar documents of title. The situation since the coming into force of COGSA 19928 is, however, quite different in two important respects. First, like the BLA  1855, COGSA  1992 bridges the gap in the context of goods covered by bills of lading. However, unlike the BLA 1855, COGSA 1992 also bridges the privity gap for goods covered by ship’s delivery orders and sea waybills. Secondly, the privity gap between the buyer and the carrier is now bridged without any reference to property but simply through the manner in which the various documents listed in COGSA  1992 are made out and/or transferred. These differences raise a question to which attitudes differ: is it still right, since COGSA  1992, to look to the common law of bailment for the answer to the delivery question – and to COGSA 1992 for the answer to the privity question? Or does COGSA 1992 now tell us both who has a right to delivery of the goods and who has title to sue the carrier in contract? We would suggest that the 1992 Act ushered in a simpler way of looking for the answers to the two questions of delivery and privity: the Act lists the cargointerests (other than the shipper9) who can ask the carrier for the goods and who can sue the carrier in contract; or, viewed from the carrier’s perspective, the Act tells the carrier to whom they must deliver the goods and against whose claims they can defend themselves in contract. By contrast, a different view is that the effect of the 1992 Act was exclusively to bridge the privity gap between carrier and buyer, the Act providing no guidance on the separate delivery question10. The practical result of this view would be that a lawyer would look to the authorities on bailment when advising on the delivery question, but at the 1992 Act when advising on the privity question. This approach accords with the traditional analysis allocating the delivery question to

8 16 September 1992. 9 As to any residual rights which the shipper may retain despite the transfer of rights under the Act to other cargo-interests, see paras 2.44 and 2.54–2.60 below. 10 See Benjamin, para 18–010: ‘[the Carriage of Goods by Sea Act 1992] does not deal with the question whether [a] document [covering goods] is a document of title in either in the common law sense or in the statutory sense’. See also, by Professor Sir Guenter Treitel, Carver on Bills of Lading, para 5.012. Cf Aikens, where, at paras 5.11–5.30, an approach is taken which lies at the opposite extreme to Benjamin, viz. that the buyer’s right to delivery is and always was exclusively contractual and could not and cannot be based on bailment.

36



The Right to Delivery of the Goods Under COGSA 1992

2.8

the common law of bailment and the privity question to statute. On this analysis, the grammar of the 1855 Act will have survived into the 1992 Act. However, to apply an 1855 analysis, restricted as it was to bills of lading and triggered by the transfer of property, to situations arising after 1992, catering as the 1992 Act does for other types of document and no longer relying on property, leads to somewhat puzzling results. First, it must be right that consignees on sea waybills and attornees of ship’s delivery orders derive from the 1992 Act a right to ask for delivery of the goods, not just rights of suit. Were it not so, the Act’s ‘rights of suit’ would be worthless because the common law of bailment recognised no right to delivery in such buyers: in effect, were it not so, a carrier would be able to negate such buyers’ rights of suit through the simple expedient of failing to deliver the goods to them, the documents themselves not being recognised by the common law as documents of bailment or ‘title’. Buyers’ right of suit could thus be negatived by the act of the very carrier the buyers seek to sue. This unpalatable consequence is only avoided if buyers of goods covered by sea waybills and ship’s delivery orders are considered to have under the 1992 Act both rights of suit and rights of delivery. Secondly, if that is right, but if the traditional analysis is nonetheless retained, we would have to say that the English common law states that only holders of an order bill of lading have a right to ask the carrier for the goods, while English statute law states that other types of buyer have that right too. To an international shipping market using English law as their law of choice for cargo claims, such a result might appear somewhat curious if not downright perverse: if the consequence is so strange, then the premise on which it is based must be wrong. Thirdly, if, in order to avoid such a remarkable result, we were to interpret the ‘rights of suit’ recognised by the 1992 Act in consignees named on sea waybills and in attornees of ship’s delivery orders to include the right to ask the carrier for delivery, then on what basis would the same phrase not bear the same meaning in the context of bills of lading? For these three reasons, it is difficult to avoid the conclusion that, while the purpose11 of the 1992 Act was clearly to bridge a privity gap, its effect also serves

11 For a comprehensive review of the purpose of the 1992 Act, see The Berge Sisar [2001] 1 Lloyd’s Rep 663 at 672–674, paras 29–31.

37

2.8   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document a second purpose. It must now be the position12 that a buyer13 who can bring themselves within one of the categories listed in the Act has rights of suit against the carrier and that among those rights must be the right which is a logical and practical precondition to the exercise of such rights, namely the right to ask the carrier for delivery of the goods. This includes rights and obligations under an arbitration agreement contained in the bill of lading, which continue to apply to a third party holder of a bill of lading notwithstanding the principle of separability of arbitration clauses from the underlying contract14. With property gone as the trigger to title to sue, buyers covered by the 1992 Act can ask the carrier for the goods and sue the carrier in case of loss, damage or short-delivery. Moreover, carriers are obliged to deliver the goods to the cargo-interests described in the 1992 Act and, if sued by such buyers, can, by virtue of the Act, defend themselves with the terms of their bills of lading. If this analysis is right, this does not mean that the question of whether a particular shipping document is a document of title at common law has become 12 Judicial attitudes are unclear. On the one hand, some support for the position set out in the text can be gleaned from obiter dicta in two different cases. First, in The Future Express [1992] 2 Lloyd’s Rep 79 at 97, decided less than a year before COGSA 1992 came into force, Judge Diamond QC said at page 96 ‘[i]t seems to me that if it be considered right that any lawful holder of a bill of lading should be entitled to sue for misdelivery or for loss of or damage to the goods, this result can only be achieved by statute.’ (Emphasis added). A  matter of months later, COGSA  1992 did exactly that, establishing a right to delivery through the transfer of rights under contract. Secondly, in The Berge Sisar [2001] 1 Lloyd’s Rep 663, Lord Hobhouse, speaking admittedly in the context of section 3 of the Act (which sets out the circumstances in which a carrier can sue the buyer of goods rather than the reverse), said at para 31, ‘when there is a contract of carriage the contract certainly includes a contractual obligation to deliver the goods’. On the other hand, the same speech by Lord Hobhouse was interpreted by Aiken J  in The Ythan [2006] 1 Lloyd’s Rep 457 at 476, para 70, to mean that the 1992 Act was intended exclusively to deal with the ‘privity’ question rather than the proprietary rights of anyone who becomes a holder of a bill of lading. It must be said, however, that both The Berge Sisar and The Ythan were cases where it was the carrier’s rights against the buyer, not those of the buyer against the carrier, which were in issue. Finally, in East West v DKBS  [2003] 1 Lloyd’s Rep 239 at 254–5, paras 45–47, Mance LJ stated that ‘[i]f it were necessary … I would conclude that the sole effect of the 1992 Act is on contractual rights’. This was a case where a carrier was found liable to shippers in bailment for misdelivery where order bills of lading had been transferred to banks named as consignees. Three observations limit the impact, however, of this dictum on the position set out in the text. First, the issue in East West was not whether the holder’s delivery rights now emerged from the common law or from the Act, but whether, despite such transfer, the shipper might in certain circumstances retain rights at common law; see further, on the shipper’s residual rights, paras 2.44 and 2.54–2.60 below. Secondly, the circumstances in East West were special; Mance LJ continues the sentence cited above thus: ‘If it were necessary, I would conclude that the sole effect of the 1992 Act is on contractual rights, and, where there is no intention to pass any possessory right, possessory rights sounding in bailment remain unaffected’. There was, in East West, no intention to transfer rights to consignee banks and, while those banks were clearly transferees under the Act, the court was unwilling to deprive the initial shippers of all rights against the carrier. Finally, and perhaps most importantly, the bailment surviving the statutory transfer of rights was a bailment on terms, ie subject to the contractual terms of the transferred bill of lading (which terms were held as a matter of construction, however, not to protect the carrier from liability). 13 Or other cargo-interests who can bring themselves within the Act, eg a bank named as consignee on an order bill or to whom such a bill has been endorsed in full or in blank. 14 The Seamaster [2019] 1 Lloyds Rep 101 at 111, paras 39–42.

38



The Right to Delivery of the Goods Under COGSA 1992

2.10

irrelevant: practical questions may well still turn on whether the document held by the claimant is a document of title at common law (most particularly, the question whether or not the holder can transfer the right to claim delivery through the transfer of the document). However, so far as concerns the main issue in this chapter, namely whether the buyer has the right to ask the carrier for delivery, statute, rather than the common law of bailment, now provides the answer.

Certain Parties Have, or Obtain, Rights Against the Carrier Under COGSA 1992 COGSA 1992 transfers rights of delivery and suit to the following parties: (1)

lawful holders of bills of lading ;

(2)

parties named as consignees in sea waybills; and

(3)

parties to whom the carrier has attorned in delivery orders.

2.9

15

The Act also expressly includes within the term ‘bill of lading’ documents that state that the goods have been received for shipment, rather than that they have been shipped on board (this raises special issues in the context of goods packed into containers, and so we shall also consider holders of container bills of lading separately). We shall look at the right of each of these three parties to claim delivery of the goods from the carrier under the Act; we shall also examine, in respect of each, whether the claimant needs to present the relevant document in return for delivery of the goods.

(a)  Bills of Lading Lawful Holder of a Bill of Lading COGSA 1992 provides ‘the lawful holder of a bill of lading’ with the ‘rights of suit under the contract of carriage’16 contained in17 the bill of lading. While the Act does not define what is meant by ‘rights of suit’, these rights must, for the reasons set out at paragraph 2.8 above, include the right to delivery of the goods. The Act does, however, limit the number of documents it regards as bills of lading18 and defines in some detail the phrase ‘lawful holder’. Accordingly, documents that are not defined as a bill of lading in COGSA 1992 do not contain or evidence rights of suit against the carrier (at least not by operation of law). 15 16 17 18

Special problems arise with switch bills and spent bills, which will be dealt with separately. COGSA 1992 s 2(1)(a). COGSA 1992 s 5(1). The Law Commissions were keen to avoid defining a bill of lading: see Rights of Suit in Respect of Carriage of Goods by Sea, Law Comm No 196 (hereinafter referred to as ‘Law Comm No 196’), para 2.50.

39

2.10

2.11   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document

Non-Order Bills Excluded 2.11

For instance, the Act does not regard as a bill of lading ‘a document which is incapable of transfer either by endorsement or, as a bearer bill, by delivery without endorsement’19. The purpose of this section was to exclude from the definition of a bill of lading, for the purposes of the 1992 Act20, a document, whether calling itself a bill of lading or not, which is made out to a named consignee, as opposed to one made out to bearer, simply to order, or to the shipper’s or the consignee’s order21. A document made out simply to a named consignee, without bearing the magical words ‘or order’22, known as a ‘straight bill of lading’, was not traditionally considered to be capable of transfer by endorsement23: it therefore made sense for 19 COGSA 1992 s 1(2)(a). 20 A bill of lading made out to a named consignee (a ‘straight’ bill) has, however, been held to be a ‘bill of lading’ for the purposes of COGSA 1971 and can, therefore, be subject to the HagueVisby Rules if any one of the requirements of Article X of those Rules is satisfied. See The Rafaela S [2005] 1 Lloyd’s Rep 347, per Lord Rodger at 361 (para 58) and paras 26 and 79; see also Kyokuyo Co Ltd v AP Møller-Maersk A/S [2018] 2 Lloyd’s Rep 59 at 65, para 18. 21 See para 2.50 of Law Comm No 196, where it is made clear that the reason behind the exclusion was to ensure that section 4 of the Act, binding the carrier vis-à-vis the lawful holder ‘of the bill’ to statements on the bill describing the goods, did not apply to non-order bills, because such a result would have conflicted with COGSA 1971 s 1(6)(b). Under that Act, the consignee named on a ‘non-negotiable receipt’ cannot bind the carrier to any statements made on the document about the goods. 22 Care is necessary in identifying whether or not a particular document is an ‘order’ bill of lading for the purposes of COGSA 1992. The concept behind the words ‘or order’ can appear in different guises and locations on the face of the bill: typed or written next to the name of the consignee; printed next to the word ‘Consignee’ in the relevant box; or printed as part of the title of the document at the top of the bill of lading. Indeed, it would appear that the words ‘or order’ do not even need to be used to make the bill capable of transfer by endorsement: see The Happy Ranger [2002] 2 Lloyd’s Rep 357 at 363, paras 28–29, where the words ‘or order’ did not appear but where printed words on the front of the bill referred to delivery of the goods to the ‘consignee or to his or their assigns’, words accepted to mean ‘or order’. It must, moreover, be remembered that it is sometimes difficult to tell whether a bill of lading is an ‘order’ bill or a ‘straight’ bill before the form is actually filled in because (a) the words ‘or order’ may be written or typed in rather than pre-printed; and (b) because the printed form may be so drafted as to be capable of use either as an ‘order’ bill or as a ‘straight’ bill: see the bill of lading in The Happy Ranger [2002] 2 Lloyd’s Rep 357 at 362, paras 27 and 28. 23 See Benjamin at para 18–024. See, however, The Rafaela S [2005] 1 Lloyd’s Rep 347 where Lords Steyn and Bingham based their decision that the straight bill of lading in that case was governed by the Hague-Visby Rules on the ground that it was a ‘similar document of title’ for the purposes of those Rules (see paras 20, 44 and 45), speeches with which Lords Nicholls and Brown agreed, respectively at paras 26 and 79. It must be remembered, however, that the bill of lading in The Rafaela S (a) expressly stated that the document was to be presented for delivery of the goods, and (b) was issued prior to the coming into force of COGSA 1992. The decision in The Rafaela S would not, therefore, appear to have altered the traditional view that a straight bill of lading is not a document capable, in the words of COGSA 1992, of ‘transferring rights of delivery or suit by endorsement’: see Debattista and Kaiser, ‘Lords Ruling sets out stance on straight bill presentation’, Lloyd’s List, 2 March 2005, and Carver on Bills of Lading at para 6.015. See also, in this context, the Court of Appeal’s judgment in the same case, affirmed by the House of Lords, and Debattista, ‘Straight Bills of Lading: a continuing saga in the English Courts – Questions resolved, untouched and mooted by The Rafaela S’ in Proceedings of the International Congress of Maritime Arbitrators (2005).

40



The Right to Delivery of the Goods Under COGSA 1992

2.15

the shipper’s rights under straight bills of lading not to pass to a buyer named as consignee through the same physical transfer mechanism which was appropriate to bills of lading made out ‘to order’. We shall see presently, though, that this does not leave the named consignee without rights to delivery and suit: these rights are intended to attach to the named consignee under such a document through another section of the Act.

‘Received for Shipment’ Bills Included as ‘Bills of Lading’ The Act makes it clear that a bill of lading which states that goods have been received for shipment, but not that they have actually been shipped on board, are also bills of lading for the purposes of the Act, such that the lawful holder of such a document has a contractual right to the delivery of the goods stated to have been received for shipment24. The inclusion of ‘received for shipment’ bills of lading is particularly significant in the context of containerised transport and will be dealt with separately below25.

2.12

Lawful Holder The Act defines the ‘lawful holder’ as a person with possession26 of the bill who is either the consignee or the endorsee to whom the bill has been transferred in good faith. Two issues arise: first, how does a holder become a holder for the purposes of the Act; and, secondly, what makes them a ‘lawful’ holder?

2.13

‘Holder’: One might have thought that the meaning of the word ‘holder’ is selfevident, barely requiring definition, never mind much judicial elaboration. The word is, however, defined in section 5(1) of the 1992 Act by reference to section 5(2), sub-sections (a), (b) and (c) which all talk of ‘a person with possession of the bill’.

2.14

The named consignee as holder: For the named consignee to be in possession of the bill, all the consignee need show is that they physically hold the bill – and that they do so ‘lawfully’, as to which more presently. All that is required is the transfer of the bill putting the consignee in possession of the bill; there is no need of any endorsement of the bill by the shipper to the named consignee. The reason why the named consignee’s position is so simple was given by Moore-Bick LJ in The Erin Schulte27:

2.15

‘… the consignee, though not in the true sense an original party to the contract, is the person to whom the carrier has agreed to deliver the 24 COGSA 1992 s 1(2)(b). 25 See para 2.51 below. 26 It was suggested, but explicitly not decided, by Rix J in The Giovanna [1999] 1 Lloyd’s Rep 867 at 874, that for a cargo-interest to be a ‘holder’ ‘with possession of the bill’, the cargo-interest did not actually have to have the bill in their possession: it was enough if the bill of lading had been endorsed and transmitted to the ‘holder’ by courier. 27 [2015] 1 Lloyd’s Rep 97 at [16].

41

2.16   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document goods against production of the bill of lading and who alone, therefore, can call for their delivery. In those circumstances, possession of the bill of lading on his part is all that is required to enable the contract to be performed in accordance with its terms.’ 2.16

An endorsee as holder: When it comes, however, to identifying the ‘holder’ further down a string of sale contracts, the matter becomes slightly more complex. Section 5(2)(b) of the Act talks of ‘a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill …’. The issue arises: is physical ‘possession’ all that is needed, or must there be, in addition, an intention in the endorser to pass, and in the endorsee to receive, the rights of delivery and suit contained in the bill of lading. It is clear from Thomas J’s decision in The Aegean Sea28 that the simple endorsement and transfer of the bill of lading to a person for whom it is not intended and who, rather than accepting the bill, sends it back to the endorser for re-endorsement and re-transmission to the intended endorsee does not make the unintended endorsee a holder of the bill of lading for the purposes of the 1992 Act. As Thomas J put it29: ‘Section 5(2)(b) requires him to have possession as a result of the completion of an endorsement by delivery. Although the sending and receipt of a document through the post often constitutes service of a document, the sending of a bill of lading through the post does not without more constitute delivery; the person receiving it has to receive it into his possession and accept the delivery before he becomes the holder.’ Similarly, Moore-Bick LJ, in the Court of Appeal in The Erin Schulte30, required an intention by the endorser to pass and an intention by the endorsee to receive the rights contained in the bill of lading for an endorsee to qualify as a ‘holder’31: ‘[i]n my view completion of an indorsement by delivery requires the voluntary and unconditional transfer of possession by the holder to the indorsee and an unconditional acceptance by the indorsee’.

2.17

‘Lawful’: A  holder is regarded by the Act as ‘having become the lawful holder of a bill of lading wherever they have become the holder of the bill in good faith’. The term ‘good faith’ is not defined in the Act32 and this immediately raises questions of definition and responsibility. What does ‘good faith’ mean in this context? One thing is clear: if the holder is a thief totally unconnected with the goods covered by the bill of lading, and if the carrier knows or is put on notice that the holder is a thief, then it must be the case that the holder has no rights

28 [1998] 2 Lloyd’s Rep 39. 29 At pages 59–60. 30 [2015] 1 Lloyd’s Rep 97; see Todd, 2015 LMCLQ 156; Carver on Bills of Lading at para 5–023 and Aikens at para 8.44. 31 At [28]. 32 Neither is any guidance given in this regard in para 2.22 of Law Comm No 196.

42



The Right to Delivery of the Goods Under COGSA 1992

2.17

against the carrier – and that the carrier owes them no duties33. Imagine, however, if the holder is not an unconnected thief, but the buyer of the goods covered by the bill of lading that has been transferred to them by the seller before payment of the price. Such a buyer holds the bill of lading ‘lawfully’ in that they have been sent it by the seller, but do they present it to the carrier for the goods ‘in good faith’, given that they have not paid34? And for rights against the carrier to be transferred to such a buyer – and for the carrier to ensure that they hand the goods over to the ‘lawful’ holder – is it (and should it be) up to the carrier to discover whether the buyer has paid? We suggest that, subject to the somewhat obvious point that, where the carrier knows or is put on notice that the holder is a thief, or that the final endorsee knows of a fraudulent endorsement further up the string, the requirement that the holder must hold the bill of lading ‘in good faith’ needs to be narrowly circumscribed lest35 impractical or unreasonable checks become necessary, with inevitable delay being caused to discharge and delivery to holders of bills of lading36 and potential liabilities for demurrage under the contract of sale and/or related voyage-charterparties or wasted hire under time-charterparties. A parallel may be drawn from the presentation of bills of lading under letters of credit: there, banks are obliged to pay beneficiaries if the documents presented appear on their face to comply with the letter of credit, unless they know of the beneficiary’s fraud37: if delay in discharge is to be avoided, a similar duty is all that can reasonably be expected of a carrier facing a holder of a bill of lading38. Where – as is commonly the case with some commodities – string sales are long, with unclear and/or undated endorsements, it may be difficult for the carrier to 33 This is the example given in para  2.21 of Law Comm No  196. If this is all that is added by requiring the holder to be ‘lawful’, it may be asked whether its explicit addition was necessary for, if fraud unravels all, then would the same result not follow without the word ‘lawful’ being added to the statute? Thus, surely, if a carrier knows that a consignee appearing as such and claiming delivery by reason of possession of a sea waybill is not the person they say they are, there is no duty to deliver to and no liability in contract towards such a ‘consignee’: this, without any statutory requirement that the consignee claiming delivery under a sea waybill being a ‘lawful’ consignee. If this is right in the context of a seawaybill, where there is no mention of ‘lawful’, why would it not be right in the context of bills of lading had the word ‘lawful’ been omitted? 34 The seller is likely, in this situation, to attempt to exercise their right of stoppage in transit under SOGA 1979 s 44 after having transferred the bill of lading to an insolvent buyer. For the difficulties which such premature transfer of the bill of lading may cause, see paras 2.54–2.56 below. 35 Commentators take differing views on whether ‘good faith’ should be interpreted widely or narrowly in this regard: for the former view, see Carver on Bills of Lading para 5.029; for the latter, see Aikens at para 8.58. 36 Thomas J put it thus in The Aegean Sea [1998] 2 Lloyd’s Rep 39 at 60: ‘Although it could be argued that in view of lack of definition in COGSA  1992, a broad meaning should be attributed to “good faith”, I  do not consider that would be the correct interpretation. In the commercial context of bills of lading, the meaning of the term good faith should be clear, capable of unambiguous application and be consistent with the usage in other contexts and countries. In my view, it therefore connotes honest conduct and not a broader concept of good faith such as “the observance of reasonable commercial standards of fair dealing in the conclusion and performance of the transaction concerned”’. 37 See UCP 600 art 14(a). 38 As to the position where a carrier delivers goods against a forged bill of lading, see fn 52 below.

43

2.18   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document check the holder’s ‘lawful’ right to hold the bill; moreover, such a check becomes impossible where the trail goes dead after an endorsement in blank. Looked at from the final endorsee’s perspective, how can that endorsee be expected to peer beyond the penultimate endorsee, their seller, in order to check the pedigree of endorsements up the string, particularly when one or more of such endorsements were in blank and/or undated39? The simple answer is that they cannot and the law should not require them to do so. The point can be illustrated by reference to this example. Under a sale contract, property is to pass on payment: if rights against the carrier could only pass to a ‘lawful’ holder, and if a holder could only be considered to be lawful if they had paid their seller, would this not have the consequence that rights against the carrier would pass to buyers by reason of the transfer of property in the goods – the very result which COGSA 1992 was intended to avoid40? Finally, even if we were to leave payment and property to one side, does the requirement that the holder be ‘lawful’ mean that, for rights against the carrier to pass – and again for the carrier to ensure that they hand the goods over to the ‘lawful’ holder – the carrier would need to investigate the chain of endorsements to ensure that they lead in an unbroken pedigree to the holder presenting the bill of lading? Moreover, would an endorsee down the string, unaware themselves of any unexplained gaps or vitiating factors in endorsements further up the string, find their title to sue imperilled by facts of which they were not aware at the time of endorsement of the bill to them? The simple answer is that they shouldn’t.

Parties Entitled to Right of Suit and Delivery 2.18

The upshot of paragraphs 2.13 to 2.17 is that the following parties are entitled, through a contract of carriage constructed by COGSA 1992, to the rights of suit under the bill of lading and to claim delivery of the goods from the carrier: (a)

a party holding a bearer41 bill of lading, whether or not the bill states the goods to have been shipped on board on the date of issue;

39 See The Dolphina [2012] 1 Lloyd’s Rep 304, where a bank claiming damages against a carrier for delivery of the goods without presentation of a bill of lading was held not to be a lawful holder of a bill of lading for the purposes of COGSA 1992 because of a fraudulent endorsement of the bill further up the string, the judge holding that the phrase ‘any indorsement’ in section 5(2)(b) of the Act was to be read as meaning ‘any valid indorsement’. At 2013 LMCLQ 275, Professor Paul Todd doubts the correctness of this decision on the basis that the indorsee will not necessarily be aware of the fraud: see page 280. 40 For this reason, it is unlikely that the word ‘lawful’ would be interpreted to mean that the carrier must enquire about ownership: see Law Comm No 196 at para 2.22. See, in this regard, Thomas J in The Aegean Sea [1998] 2 Lloyd’s Rep 39 at 60: ‘The provisions of COGSA 1992 do not depend on the passing of property; it would be impermissible, in my view, to re-introduce the link between the passing of property and rights under the bill of lading under the Bills of Lading Act 1855 by interpreting the word endorsement in such a way as to link it with the passing of property’. 41 A ‘bearer’ bill is a bill of lading naming ‘Bearer’ or ‘Holder’ as consignee.

44



The Right to Delivery of the Goods Under COGSA 1992

2.19

(b) a party holding a bill of lading made out simply to order or to shipper’s order, where that party is an endorsee42 in full43 or in blank44 from that transferee, in either case, again whether or not the bill states the goods to have been shipped on board on the date of issue; and (c)

a party holding a bill of lading made out to the order of a named consignee, where that party is the named consignee45, again whether or not the bill states the goods to have been shipped on board on the date of issue;

(d)

a party holding a bill of lading made out to the order of a named consignee46, but to whom the bill has been endorsed by the consignee or another endorsee, whether in blank or in full.

At Common Law, the Buyer has to Present Bills of Lading to Obtain Delivery It has long been settled that the carrier must deliver the goods to the holder of a bill of lading who presents the bill for delivery of the goods47, that delivery48 without presentation of the bill is a breach of contract49, and that this breach deprives the carrier of contractual exclusions and limitations which will 42 Where a bill of lading is made out to shipper’s order or simply to order, there is some doubt whether the bill needs to be endorsed by the shipper to the first transferee: see paras 4.29–4.30 below. 43 That is, bearing both the signature of the transferor and the name of the transferee for whom the goods are now destined. 44 That is, simply bearing the signature, normally in the margin on the reverse side of the bill of lading, of the transferor of the bill, without any identification of the transferee. A bill of lading endorsed in blank in effect becomes a bearer bill, in that it can be transferred by simple delivery without further endorsement, at any rate until the bill is subsequently endorsed in full, in which case further transfer of rights would need another endorsement by the endorsee-in-full: Keppel TL v Bandung [2003] 1 Lloyd’s Rep 619 at 622, paras 20 and 23, Singapore CA. 45 The only requirement for the transfer of rights here is for the consignee to be named as such on the bill and for the bill of lading to be delivered to the consignee by or under the authority of the shipper; there is no need for the shipper to have endorsed the bill in any way: see para 4.28. 46 This would include an order bill of lading naming an identified party as consignee and a bill of lading naming the consignee as ‘to shipper’s order’ or simply ‘order’. 47 See London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 11 Asp MLC 571; and, most recently, The Dolphina [2012] 1 Lloyd’s Rep 304 at [137]–[142]. See also Scrutton, at paras 13–009 to 13–010. 48 ‘Delivery’ of the goods without presentation of the bill of lading ‘does not necessarily involve that the shipowners must themselves physically hand over the cargo to the receivers in the sense of physically shovelling the coal onto the consignees’ lorries. … [W]hat is involved in this context is the divesting or relinquishing of the power to compel any dealing in or with the cargo which can prevent the consignee from obtaining possession’: Great Eastern Shipping Co Ltd v Far East Chartering Ltd and another, ‘The Jag Ravi’ [2012] 1 Lloyd’s Rep 637 at [45]. 49 The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266, see particularly 272: ‘subject to the terms of the particular contract and save in exceptional circumstances a shipowner must not deliver the goods otherwise than against presentation of an original bill of lading. That seems to me to be quite implicit in the express provision … that any one of the bills of lading being accomplished the others to stand void … [o]ne would expect one of the bills of lading to be “accomplished” by being presented to the master or shipowner’. See also The Stettin (1889)14 PD 142 at 147.

45

2.19

2.20   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document otherwise be available under the contract evidenced by or contained in the bill of lading50. The presentation rule makes sense both from the shipper/seller’s point of view and from the carrier’s51. If the carrier is bound to give the goods only to a presenter of the bill, then the seller can rest assured that the goods they have sold to their buyer will be delivered to that buyer or to an on-buyer from that buyer who, though possibly unknown at the time of shipment, can prove their credentials by presenting the bill. From the carrier’s perspective, if the carrier’s delivery obligation is simply to deliver the goods to the presenter of a genuine52 bill of lading, then they can deliver goods without needing to enquire whether the presenter is actually entitled to the goods under contracts of sale to which they, the carrier, are not a party and with the terms of which they are not concerned53.

Under COGSA 1992, the Buyer Needs to Present Bills of Lading to Obtain Delivery 2.20

If the right to delivery of the goods can be based on the contract of carriage constructed by COGSA  199254, in a wider variety of circumstances than that envisaged by the repealed BLA 1855, the question arises whether any particular class of cargo claimant can demand delivery of the goods without presentation of a bill of lading. If the justification for the demand is contract rather than bailment, 50 Sze Hai Tong Bank v Rambler Cycle Co [1959] AC 576 and other cases cited in Scrutton at paras 13–009 to 13–010. This is an application of the so-called ‘deviation rule’ outside the strict geographical origins of that rule. The rule has been repeatedly doubted in the literature as a result, in particular, of developments in the general law of contract after PhotoProduction v Securicor [1980]  AC  827: see Mills ‘The Future of Deviation in the law of the carriage of goods’ [1983]  LMCLQ  587; Debattista ‘Fundamental Breach and Deviation in the Carriage of Goods by Sea’ [1989] JBL 22; Baughen ‘Does Deviation still matter’ [1991] LMCLQ 70; and ‘The Presentation Rule Re-Visited’ [1995] LMCLQ 289 at 296. The deviation rule continues to apply, however, at any rate in the context of misdelivery: see The Ines [1995] 2 Lloyd’s Rep 144 at 153–4. On the other hand, the fact that a carrier who misdelivers goods appears not to be entitled to make use of contractual exclusion clauses does not mean that they cannot, through a carefully drafted contractual clause, stop misdelivery being a breach in the first place: see Rix J in Motis Exports v Dampskibsselskabet AF [1999] 1 Lloyd’s Rep 837 at 847 and Mance LJ at para 5 of his judgment in the Court of Appeal decision in the same case at [2000] 1 Lloyd’s Rep 211 at 217. See also Dera Commercial Estate v Derya Inc (The Sur) [2018] EWHC 1673 (Comm). 51 See The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266 at 274 (doubted on other grounds in East West Corp v DKBS [2003]1 Lloyd’s Rep 239 at 254–5, para 47): ‘[The presentation rule] makes commercial sense ... In that way both the shipowners and the persons in truth entitled to possession of the cargo are protected by the terms of the contract’. 52 However, since the Court of Appeal’s decision in Motis Exports v Dampskibsselskabet AF [1999] 1 Lloyd’s Rep 837, it would appear that, saving contrary stipulation in the bill of lading, a carrier who delivers goods against a forged bill of lading is liable for misdelivery even if the bill of lading appeared on its face to be genuine. The decision has rightly attracted criticism on the ground that this places too heavy a burden of inquiry on the carrier: see Todd ‘Delivery against Forged Bills of Lading’ [1999] LMCLQ 449. 53 See Evans & Reid v ‘Cournouaille’ (1921) 8 LlL Rep 76 at 77: ‘[t]he transaction between the buyers and [the shipper] has nothing to do with the shipowners’. 54 See para 2.8 above.

46



The Right to Delivery of the Goods Under COGSA 1992

2.22

surely the contract speaks for itself without the need for the symbol of bailment, a bill of lading, to be presented. We suggest that a cargo-claimant with rights based on a ‘bill of lading’ for the purposes of COGSA  1992 would still need to present the bill for delivery of the goods. The language of the Act makes this clear: section 2(1)(a) speaks of a ‘lawful holder of a bill of lading’, and section 5(2), in defining ‘holder’ makes it clear that the claimant must be ‘a person with possession of the bill ’. As much after as before COGSA  1992, the fact that the bill of lading can transfer the right of delivery to parties unknown to the carrier at the time of shipment makes it essential for the carrier to be able to identify the rightful claimant to possession of the goods through the simple expedient of asking for the presentation of the bill.

Without the Bills, the Buyer Cannot Demand Delivery The rule can sometimes work harshly against buyers who find that they cannot claim delivery of the goods from the carrier because, for reasons completely outside their own control, they have no bill of lading in their possession when the goods arrive at the port of destination. Thus, in Trucks & Spares, Ltd v Maritime Agencies (Southampton) Ltd55, a buyer of goods to whom the bill of lading had not been endorsed was denied an interim order by the Court of Appeal for delivery of the goods by the carrier. The fact that the carrier had retained the bills of lading, with the shipper’s agreement56, as security against outstanding debts owed them by the shipper failed to persuade the majority of the court that the blameless buyer should prevail57.

2.21

Delivery Without the Bills Puts the Carrier in Breach, Liable at Large With no Exception/Limitation The requirement to present a bill of lading can also operate harshly on the carrier, against whom delivery of the goods without presentation of the bill of lading attracts severe sanctions. The carrier delivers without presentation very much at their peril: the shipper, who may well have delayed despatch of the bill of lading because of doubts as to the buyer’s ability or willingness to pay, or the lawful holder of the bill of lading, has a right of action in damages against the carrier for wrongful delivery58. This applies whether the goods are handed over to the 55 [1951] 2 All ER 982. 56 It should be recalled that a carrier need only issue a bill of lading if a demand for such issue is made by the shipper: COGSA 1971 Sch art III.3; the position was the same under the COGSA 1924, which was in force when the Trucks case was decided. The case provides a useful illustration of the difficulties in which buyers can find themselves because they, the parties ultimately interested in the issue of the bill of lading, have no right in law to demand its issue. We shall return to this point in Chapter 6, when discussing the function of the bill of lading as a receipt. 57 This point was not lost on Hodson LJ, who dissented, not being as willing as the majority presumably were to throw the buyer back on his remedies for non-performance of the sale contract against a seller who was clearly having difficulties meeting his financial commitments. 58 The Stettin (1889) 14 PD 142; see also The Ines [1995] 2 Lloyd’s Rep 144 at 151 Col. 1.

47

2.22

2.23   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document buyer without presentation of the bills or to a warehouse owner or other third party59. Moreover, in such an action, the carrier is deprived of the protection of any limitation or exception to liability which the bill of lading might contain60 and, under most P&I Club Rules, of cover under those Rules61.

Exceptions to the Presentation Rule 2.23

Given the possible consequences of the presentation rule, both for the buyer and for the carrier, the issue arises as to whether the law recognises any exceptions to the requirement of presentation. Two such exceptions appear to be uncontroversial. First, the presentation rule does not apply where the law of the place of discharge requires delivery without presentation as a consequence of mandatory local law: ‘any other conclusion would mean that the contract could not lawfully be performed, which could not have been intended by the parties’62. The second arises where a binding custom at the port of discharge makes a similar requirement63.

Delivery Where the Bill of Lading is Lost 2.24

In The Sormovskiy 3068, Clarke J  described a third exception in the following terms64: ‘[The presentation rule] 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 in the future.’ This exception has not fared well in later cases65, probably because of the practical difficulties which would surround such an exception. If a buyer were to claim delivery of goods without presentation of a bill of lading simply on the basis

The Jag Ravi [2012] 1 Lloyds Rep 637 at 646, para 45, Tomlinson LJ. See the cases cited at fn 50 above. See, for example, Gard P&I Club Rules, Rule 34.1(i). The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266 at p 275. Ibid. Neither of these two exceptions were found by Clarke J to be applicable on the facts before the court. 64 Ibid at p 274. 65 See Rix J in Motis Exports v Dampskibsselskabet AF [1999] 1 Lloyd’s Rep 837 at 842: ‘there is, it seems to me, no support … for the concept that a shipowner can be obliged to deliver not against a bill of lading but against a reasonable explanation of its loss’ (Rix J approved by CA at [2000] 1 Lloyd’s Rep 211); see also East West v DKBS [2003] 1 Lloyd’s Rep 239 at 254–5, para 47). 59 60 61 62 63

48



The Right to Delivery of the Goods Under COGSA 1992

2.25

that the bill had gone missing, the carrier would, before they delivered without presentation and without liability, need to turn their mind to the following questions: (1)

What type of evidence66 would establish that the cargo-interest presenting themselves, but not the bill of lading, for delivery of the goods was actually entitled to possession of the goods: proof of ownership, proof of payment, sight of the contract of sale?

(2)

Would these be matters with which a carrier would normally be concerned – and would they be matters a carrier would normally be equipped speedily to assess67?

(3)

Moreover, in establishing what had become of the bill of lading, what type of event would entitle the carrier to deliver without presentation? Would it be enough to establish that the bills had not reached the discharge port by the time the vessel arrived; or that there was no likelihood of their arrival for a reasonable time thereafter; or that they were stolen, or lost, or were embargoed in the vaults of an insolvent bank?

While the first two exceptions set out by Clarke J  in The Sormovskiy 306868 are relatively certain in their ambit and application, the third is neither and has, for that reason, failed to attract support.

Practical Solutions to the Need for Presentation Given the uncertainties involved in these exceptions to the presentation rule, commercial parties are far more likely to seek solutions to the problems of delay in the arrival of the bill of lading through commercial expedients. First, parties use an intricate framework of indemnities69: (1) an indemnity given by the seller to the buyer holding the latter harmless against the consequences of paying the price without tender of the bill70; and (2) an indemnity given by the buyer to the carrier holding them harmless against the consequences of

66 See, in a similar sense, Aikens at para 5.8. 67 The same critical questions may, of course, be levelled at the decision in Motis Exports v Dampskibsselskabet AF [1999] 1 Lloyd’s Rep 837 itself: how could a carrier speedily assess whether a bill of lading was genuine so as to avoid any risk of liability for misdelivery? 68 See para 2.23 above. 69 See Goode Proprietary Rights at pp 102–103; and, for a practical example of such an intricate framework, see The Delfini [1990] 1 Lloyd’s Rep 252. 70 See, for instance, GAFTA 100 (effective 1 March 2016), clause 12(c).

49

2.25

2.25   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document delivery of the goods without presentation of the bill71. The prospect of delay frequently concentrates the mind of the parties and compels them to agree on delivery of the goods without presentation of the bill of lading. By contrast, delaying discharge because the bill of lading has not arrived is unpalatable to the carrier, who is reluctant to spend too much time watching their vessel idle. Again, where the seller is the charterer of the vessel, delay at the discharge port may well incur demurrage if they are a voyage-charterer or wasted hire if they are a time-charterer, both being expenses which eat into their margin of profit on the sale contract. Thirdly, a buyer awaiting discharge pending the arrival of the bill of lading may well incur liabilities towards third parties, like on-buyers or providers of storage facilities at the discharge port. Secondly, the industry has developed72 various initiatives, through the application of computer technology, to transmit trade documents and to effect delivery electronically73. These initiatives have had varying degrees of success in achieving their desired aims. The only case we are aware of to date in which the courts have had an opportunity to consider an electronic initiative related to the delivery of the goods is Glencore International AG v MSC Mediterranean Shipping Co SA74. In that case, the carrier purported to effect delivery via the provision to the buyer of a PIN code to a warehouse containing the goods. However, the Court of Appeal held this to be ineffective to discharge the carrier’s duty to actually deliver possession of the cargo. However, the court did not exclude the possibility that parties could agree by contract to accept symbolic delivery by virtue of the provision of a PIN code, although they had not so agreed in the instant case75. 71 The fact that the carrier is given an indemnity by the charterer, holding the carrier harmless against the consequences of delivery without presentation, means not that the carrier is not in breach by so doing, but that, given that they may suffer consequences because of that breach, the charterer providing the indemnity will hold the carrier harmless against those consequences. In the words of Ang Saw Ean J, in The Dolphina [2012] 1 Lloyd’s Rep 304 at [146], ‘the true effect of such [indemnity] clauses is not to oblige the shipowner to discharge the cargo without production of the bill of lading, but to permit the shipowner to do so if necessary, and to afford the shipowner the benefit of an indemnity from the charterer in case liability should befall the shipowner as a result’. In other words, a letter of indemnity (LOI) does not change breach into performance; it provides a safety net for the consequences of breach. 72 The task has been left to industry because new regulations have been issued under COGSA 1992 s  1(5) applying the Act to ‘cases where an electronic communications network or any other information technology is used’ for bringing about the results effected in the paper world by the same Act. 73 For accounts of the various initiatives taken in the trade, particularly through the application of computer technology to the transmission of trade documents, see Electronic Data Interchange, UNCITRAL, A/CN.9/WG.IV/WP.69, 1996; Kurt Gronfors Cargo Key Receipt and Transport Document Replacement (1982); and Goode Proprietary Rights at pp 106–112. See also Goldby ‘The CMI  Rules for Electronic Bills of Lading Reassessed in the Light of Current Practices’ [2008] LMCLQ 56; Beale and Griffiths ‘Electronic Commerce: formal requirements in commercial transactions’ [2002]  LMCLQ  467; and Clarke ‘Transport Documents: their transferability as documents of title; electronic documents’ [2002] LMCLQ 356. 74 [2017] EWCA Civ 365, at paras 31, 41–42. 75 Benjamin, section 2(f) – Paperless Transactions at paras 18–247 to 18–258; Scrutton, Article 49 – Bills of Lading in the Electronic Age, at paras 5–004 to 5–006; Carver on Bills of Lading at paras 8–094 to 8–101.

50



The Right to Delivery of the Goods Under COGSA 1992

2.27

(b)  Switch Bills of Lading Issues do arise from time to time relating to the not uncommon occurrence where an initial set of bills of lading is replaced by ‘switch’ or ‘switched’ bills76. In essence, switch bills are bills of lading which replace a set already issued.

2.26

The switch bills are issued by the carrier, typically at the request of the shipper, usually but not necessarily a charterer, who may need a set of bills of lading with different text in one of the boxes on the face of the bills to the text contained in the first set issued. So, for example, it may be that the initial set issued names the buyer as consignee, but, once a letter of credit is opened, or once the letter of credit is carefully scrutinised by the seller, the seller now realises they need bills of lading naming the issuing bank as the consignee. Alternatively, a seller having first shipped 10,000 metric tonnes of a given commodity, but now having sold two different parcels of 5,000 metric tonnes each, now needs two bills of lading for each of the smaller parcels. Finally, the reason for the issue of switch bills may originate not with the seller but with the buyer: it may, for example, be the buyer who has sold down a string who may, for reasons having to do with the on-buyer’s country of import, require the bill of lading to contain, say, a direct reference to a particular type of phytosanitary certificate – and the set initially issued contained no such reference. In all three of these cases, the seller/shipper or the buyer now needs a bill of lading saying something different to what it said on issue. A simple alteration, even if signed or initialled, would not pass muster. In SIAT di dal Ferro v Tradax77, Donaldson J stated that an altered bill of lading was not one which was ‘reasonably and readily fit to pass current in commerce … at least if the alteration is other than the correction of a minor clerical error, the correction being signed or initialled before the bill is issued’. None of the three situations envisaged above relate to a minor clerical error; neither could the necessary alterations have been made before the issue of the first set of bills of lading. The need, therefore, is for an entirely new set of bills of lading, a switched set replacing the set initially issued by the carrier. The practice raises a number of contractual and legal questions. The first is whether the carrier is contractually bound to issue switch bills when a request for their issue is made. If the seller/shipper making the demand is a charterer, the charterparty may itself give the shipper an express right to request, and impose upon the carrier an express duty to issue, switch bills. Where there is no such charterparty, or there is but the charterparty makes no mention of switch bills, and the contract of carriage between the shipper and the carrier is governed by the Hague-Visby Rules, then it would appear that there is nothing 76 See Finmoon v Baltic Reefers [2012] 2 Lloyd’s Rep 388 at [43]. See also, for instances where bills of lading were switched, The Atlas [1996] 1 Lloyd’s Rep 642 at 644, where the practice was described as ‘fraught with danger’; The Oinissian Pride [1991] 1 Lloyd’s Rep 126; AP Moller Maersk v Sonaec Villas [2011] 1 Lloyd’s Rep 1; Sea Glory Maritime Co v Al Sagr National Insurance Co (The M/V Nancy) [2012] EWHC 874 (Comm); [2014] 1 Lloyd’s Rep 14 where false bills of lading were issued to circumvent Iranian sanctions; Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd (The Sea Master) [2018] EWHC 1902 (Comm), [2019] 1 Lloyd’s Rep 101. 77 [1978] 2 Lloyd’s Rep 470 at 492, affd. [1980] 1 Lloyd’s Rep 53.

51

2.27

2.27   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document in the Rules which prevents the issue of a second set of bills of lading. The harder question would appear to be whether the carrier is bound so to issue at the shipper’s demand: Article III.3 of the Rules might plausibly be argued to impose such a duty, the carrier’s duty being triggered ‘on demand of the shipper’. The more sensible construction of that Rule, however, is that, once the first demand is made and satisfied, Article III.3 is exhausted and no further demand for a switch bill can be made as a matter of entitlement. Be that as it may, a carrier faced with such a demand, however, would be well-advised to insist on the surrender of the set of bills of lading first issued78. To issue a second set of bills of lading for the same goods as those covered by the set first issued might expose the carrier to conflicting demands for the goods, and that risk can only be avoided if only one set of bills remains in circulation. If, on the other hand, both sets of bills remain in circulation, the question then arises as to whether the carrier is bound to deliver the goods to the first presenter of an original of either set of bills of lading, or whether the carrier can or must prefer the presentation of an original of the first set because it was the set originally issued, or of the second set because it was the set most recently issued. There is no decided case on this important point, which therefore remains moot. One view is that the carrier is bound to deliver the goods to the first presenter of an original of either set of bills. The second view is that the carrier should deliver only to a presenter of the second set of bills. The first view can be justified by virtue of the fact that it was the carrier’s decision to leave two sets of bills of lading in circulation. On that view, whoever it is that presents the first bill of lading, whether from the first or the second set, should not be denied the goods when presenting the bill of lading for delivery of the goods. By contrast, the justification for the second position is that, since the carrier has issued switch bills, they are in full knowledge that there are two sets in circulation and that both sets cannot cover the same goods. Accordingly, the second set must prevail. Whichever of these two positions is adopted, the question which then arises is this: if a carrier has issued switched bills without taking the precaution of retrieving the first set issued, and if the carrier then delivers the goods to the first presenter (on the first view), or the holder of the switched bill (on the second view), does that discharge the carrier’s delivery responsibilities such that the holder of the other bill still in circulation cannot claim damages from the carrier for misdelivery? When this issue arises in the context of one set, the matter is settled in the carrier’s favour by the time-old device of expressly stating on each original of one set ‘one of these being accomplished, the others to stand void’. This clause makes it clear that delivery of the goods against one original discharges delivery responsibilities against all originals. Is the same true, however, where the carrier has issued two sets of bills of lading without retrieving the first set? Even though both sets will state that ‘one of these being accomplished, the others to stand void’, is it reasonable to allow that clause to travel, as it were, not just within but across sets? 78 As they were in Finmoon v Baltic Reefers [2012] 2 Lloyd’s Rep 388 at [41].

52



The Right to Delivery of the Goods Under COGSA 1992

2.29

It is the carrier who has facilitated a second presentation of an original of another set of bills of lading by failing to retrieve the first set – and we suggest that it is the carrier who must bear the consequences of having done so. Let us now turn to the status of switch bills in the context of the sale contract or the letter of credit. Where the original reason for the issue of switch bills was the buyer’s, the buyer here can hardly object to the tender by the seller of a switched set of bills of lading, so long, at any rate, as the switch bills comply in all other requests with any documentary requirements under the contract of sale. Where the reason for the issue of switch bills was the seller, again it would seem that the seller can tender the switch bills so long as they comply in all other requests with any documentary requirements of the sale contract. In this context, the aspect of switch bills that is most likely to cause problems is the date of issue. Given that the date of issue is, in the absence of clear evidence to the contrary, deemed to be the date of shipment of the goods, if the switch bills bear the true date of issue, which is necessarily later than the date of issue of the first set, and if that later date lies outside the shipment period envisaged by the sale contract, could the seller tender an original of that second switch bill, appearing to evidence late shipment? The answer to that question must be ‘No’, the seller being under a duty to tender a bill of lading within the shipment period79. In order to avoid that risk of rejection by the buyer, a rejection which may tempt the buyer under a falling market, a seller requesting the issue of switch bills would be well-advised to ensure that the switch bills bear not only the date of issue but also the date of actual shipment, such that the document shows on its face that the seller has complied with their duty to ship the goods within the agreed shipment period. Finally, can a seller, as beneficiary under a letter of credit, tender a switch bill to a confirming or an issuing bank? The answer to that question would appear to be that the beneficiary can so tender, so long as the bill of lading presented complies with the requirements of the letter of credit and with the UCP  600. Given that the document checker is and can only be concerned with whether a bill of lading presented is compliant with the letter of credit and the UCP 600, the document checker will not – and cannot – lift the veil, as it were, of the bill of lading presented in order to discover whether it was the bill of lading which was issued first or second.

2.28

(c)  Spent Bills of Lading We have already looked, in the context of switch bills, at the meaning of ‘one  of  these being accomplished, the others to stand void’. The phrase means that delivery of the goods against one original of the usual set of three discharges the carrier’s delivery responsibilities against the other originals in the

79 Bowes v Shand (1877) 2 App Cas 455, and see para 9.5 below.

53

2.29

2.30   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document set80. Those other originals have now been ‘spent’: they are past their sell-by date because one of the originals in the set has done what it was always meant to do, namely to be presented against discharge of the goods by the lawful holder. It barely requires stating, therefore, that a receiver of goods who has presented one original in a set cannot present either of the remaining two originals and ask for the goods all over again. What if, however, the other two bills of lading are with a third party from whom the buyer had received financing against the security of the goods represented by (two originals of) the bills of lading81? The two originals in the hands of the third party pledgee are technically spent because the carrier has handed the goods to a lawful holder of a bill of lading. Is the innocent third party holding the bills in security to lose out because a defaulting ‘lawful holder’ of one original has ‘spent’ the bills of lading? Section 2(2) of COGSA 1992 allows the rights of that third party to survive the ‘spending’ of the bills of lading in its possession by the discharge of the goods to the lawful holder. However, lest spent bills of lading become a vehicle for the champertous sale of a chose in action, COGSA  1992 imposes a strict timing condition for the title to sue of the third party (typically a bank extending credit to the seller or the buyer of the goods) to survive the ‘spending’ of the bill by delivery of the goods to the lawful holder of one original. The third party must have come into possession of the bill of lading ‘by virtue of a transaction effected in pursuance of any contractual or other arrangements made before’ the discharge of the goods to the lawful holder presenting the first original. As long as the third party holder can show that it had become a lawful holder under a contract or arrangement made before the discharge of the goods, it too has title to sue the carrier under what is technically a ‘spent’ bill of lading. 2.30

There is, ostensibly, a residual difficulty here. COGSA 1992 provides the lawful holder with title to sue, but not, expressly at least, with a cause of action: if COGSA 1992 gives the lawful holder the platform from which to launch the claim, it is COGSA  1971 which, in Article III.1(a), provides them with the cause of action, in the shape, for example, of the duty to provide a seaworthy vessel. To put it another way, COGSA 1992 provides the bow, but COGSA 1971 provides the arrows. The difficulty with spent bills of lading is that it is difficult for a third party holder whose title to sue has been preserved by section 2(2) of COGSA 1992 to point to a breach of contract by the carrier outside the confines of COGSA 1992 80 The recent Singapore case The Yue You 902 [2019] 2 Lloyds Rep 617 at 627–628, paras 58–74, held that delivery must be to a person entitled to the bill of lading and not to a thief, or other third party who has come into possession of the bill of lading by ulterior means. Although this is not binding on the English courts, in our view, the judgment is correct. By contrast, to say that a bill becomes spent when the goods are discharged on presentation of the bill by whoever must be a nonsense, because that would put the carrier in a position to kill the holder’s rights simply through the cynical expedient of discharging the goods to anybody – which must be wrong. 81 If the third party has all three originals in its possession, then COGSA 1992 s 2(2) is not engaged: the bills are not spent, because the carrier will not have given the goods to a party entitled to them. The holder of all three bills of lading that it holds in security will then have a claim under s 2(1) as a lawful holder of the bill.

54



The Right to Delivery of the Goods Under COGSA 1992

2.32

itself: if section 2(2) of COGSA  1992 preserves a bow, where is  the arrow? It can hardly be suggested that the cause of action is misdelivery: in the scenario envisaged above, the carrier has delivered the goods to a lawful holder and is therefore not in breach. We are left with two possibilities. The first is that section 2(2) of the Act is left without meaning where it is most needed: the third party holding the bills in security has a bow, but not an arrow; only half a weapon, leaving them without a remedy. It might be said that such a holder is the author of their own loss: prudence would have suggested that it should have taken all three bills of lading in security and not put its debtor in a position lawfully (as against the carrier) to claim possession of the goods. On the other hand, to give a statutory section an interpretation that leaves it effectively meaningless is intuitively unpalatable. The second option, therefore, is to say that section 2(2) of COGSA 1992, singularly for the Act, provides the holder described in section 2(2) with both a bow and an arrow: such a party, typically a bank, who has title to sue through section 2(2) of COGSA  1992, also has, by virtue of its application, a cause of action against the carrier. This was the effect favoured by the Court of Appeal in The Erin Schulte82.

2.31

(d)  Sea Waybills and Straight Bills of Lading What Sea Waybills Are Sea waybills83 look remarkably like ordinary bills of lading. Indeed, in two important ways, they are just like bills of lading: the front of the document will bear a description of the quantity and apparent condition of the goods84; and the back of the document provides evidence of the terms of the contract of carriage85. Sea waybills differ from bills of lading in that, rather than indicating that the goods described are deliverable to the order of the shipper or of the consignee, they will make it explicit that the goods are deliverable only to the named consignee. Again, different carriers will do this in a variety of ways. For example, the document may call itself non-negotiable, omitting the word ‘order’ from the ‘consignee’ box on the front of the document, and stating explicitly that the goods will be deliverable to the consignee or the consignee’s authorised representative on proper proof of 82 [2015] 1 Lloyds Rep 97 at 109, para 56. 83 These documents travel under different aliases: thus, ‘non-negotiable sea waybill’ (Maersk Line), ‘non-negotiable liner waybill’ (BIMCO LINEWAYBILL), ‘non-negotiable cargo receipt’ (WORLDFOODRECEIPT, BIMCO), ‘non-negotiable liner waybill’ (WORLDFOODWAYBILL, BIMCO), Non-negotiable Combined Transport Sea Waybill (COMBICONWAYBILL, BIMCO). 84 A description, however, to which the buyer cannot bind the carrier: see COGSA 1971 s 1(6)(b); and see also COGSA 1992 s 4, which section only applies in terms to ‘bills of lading’. 85 Some documents will do so by recording the carrier’s contractual terms in full, eg  BIMCO’s COMBICONWAYBILL and BIMCO’s WORLDFOODWAYBILL; others will do so by recording some such terms and incorporating others, eg Maersk Line’s non-negotiable sea waybill and BIMCO’s WORLDFOODRECEIPT 2017.

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2.32

2.33   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document identity and authorisation. Alternatively, the ‘consignee’ box itself may make it clear that the document is ‘not to order’86. Again, the document may simply omit the ‘consignee’ box altogether, indicating expressly that the goods are deliverable ‘to the Party nominated by the Charterers or their authorised agent87.

When Sea Waybills are Used 2.33

Sea waybills are the sea-going counterparts of consignment notes, used in land transport, and air waybills, used in air transport. In neither of these contexts is it common for goods to be sold on by the buyer while the goods are in transit88. Consequently, sea waybills too are typically used when there is no intention to sell the goods on, while they are in transit and where there is consequently no need to enable the buyer to transfer the documents before the arrival of the goods. Traders are frequently encouraged89 to use sea waybills rather than bills of lading where they ship goods on their own account, where they sell goods to a company with which they are closely associated, or where they sell goods to a trusted customer buying exclusively for their own use.

Sea Waybills Defined by COGSA 1992 2.34

Sea waybills made their first statutory appearance under that label90 in COGSA 1992. For the purposes of the Act, a sea waybill is a document ‘which is not a bill of lading’ but which evidences the receipt91 of goods and the terms of a contract of carriage, and which ‘identifies the person to whom delivery of the goods is to be made by the carrier in accordance with that contract’92. This last part of the definition is amplified by section 5(3) of the Act, which includes within the definition of the term ‘sea waybill’ a document ‘which allows for the identity of the person [to whom the goods are deliverable] to be varied, in accordance with the terms of the document, after its issue’. This final turn to the statutory 86 See, for example, BIMCO’s COMBICONWAYBILL 2016 and LINEWAYBILL 2016. 87 See, for example, BIMCO’s HEAVYCONRECEIPT 2016. 88 See Goode and McKendrick on Commercial Law (6th edn, 2020, LexisNexis) (hereinafter referred to as ‘Goode Commercial Law’); J F Wilson, Carriage of Goods by Sea (7th edn, 2010, Pearson Longman) (hereinafter referred to as ‘Wilson’), pp 159–161 and Tetley Marine Cargo Claims (4th edn, 2008, Editions Yvon Blais) (hereinafter referred to as ‘Tetley’), pp 2369–2371. Sea waybills are more commonly used in liner rather than in bulk trades: see Law Commission Working Paper No 112, Rights to Goods in Bulk, p 9, footnote 28. 89 See, generally, Report on Maritime Fraud, United Nations Conference on Trade and Development, UNCTAD/ST/SHIP/8 (hereinafter referred to as ‘UNCTAD  Report on Maritime Fraud’), Part II; see also ‘The Use of Transport Documents in International Trade’, UNCTAD/SDTE/ TLB/2003/3 at para 32. 90 In COGSA  1971, the sea waybill appeared in section 1(6)(b) as ‘a non-negotiable document marked as such’. 91 Thus, again, a sea waybill stating the goods to have been received for shipment rather than that they were shipped on board would come within the definition of the term ‘sea waybill’, just as, through section 1(2)(a), a ‘received for shipment’ bill of lading is included in the definition of the term ‘bill of lading’ for the purposes of the Act: see para 2.12 above. 92 See COGSA 1992 s 1(3).

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The Right to Delivery of the Goods Under COGSA 1992

2.36

definition reflects the commonly held view93 that a shipper of goods described in a sea waybill can, prior to delivery of the goods to the named consignee, instruct the carrier to deliver the goods to someone other than that consignee94.

The Current Position on the Right to Delivery: COGSA 1992 COGSA 1992 gives ‘the person to whom delivery of the goods to which a sea waybill95 relates96 … all rights of suit under the contract of carriage’97. Just as with bills of lading, these ‘rights of suit’ must include the right to demand delivery of the goods98. Consequently, the person for the time being99 named as consignee on a sea waybill has a contractual right to demand delivery of the goods despite the fact that they do not hold a document giving them at common law a bailor’s right to possession.

2.35

There is no Duty to Present a Sea Waybill to Claim Delivery The main advantage in the use of sea waybills is that, for the buyer to obtain delivery of the goods from the carrier, they need not present the actual document to the carrier before delivery: they need only prove that they are the person named as consignee on the face of the document. The buyer and/or seller may, of course, stipulate in the contract of sale or in the letter of credit for the tender of the document100. However, as a matter of law, they do not need physical possession of the document in order to gain access to the goods: consequently, delay in the arrival of the document causes none of the problems associated with delivery of goods without presentation of a bill of lading101. Documents will state the position explicitly in clauses of varying complexity. Thus, at its most basic, the document will state that ‘[d]elivery will be made to the Consignee or his authorised representative on production of reasonable proof of identity (and, in the case of an agent, reasonable proof 93 See Benjamin at para 18–033, Tetley, pp 2359–2366 and K Gronfors Cargo Key Receipt and Transport Document Replacement (Gothenburg 1982). The shipper’s right to instruct the carrier to deliver to a person other than the named consignee is preserved by COGSA 1992 s 2(5). 94 In a negotiable bill of lading, by contrast, once the bill of lading has been transferred to the consignee, the shipper loses any right to give the carrier alternative delivery instructions. 95 Defined in COGSA 1992 s 1(3). 96 That is, the original consignee or the person to whom the seller later instructs the carrier to deliver the goods, as indicated in COGSA 1992 s 5(3). 97 See COGSA 1992 s 2(1)(a). 98 See para 2.8 above. 99 This allows for a change of delivery instructions given by the shipper to the carrier prior to discharge of the goods: see COGSA 1992 ss 1(3)(b), 2(5) and 5(3) and para 2.34 above. 100 Despite the fact that they may not need the document to gain access to the goods, the buyer may well want the document to have a record, albeit rebuttable by the carrier (see fn 84 above) of what was shipped and the contractual terms on which it was shipped. Moreover, Article 21 of the UCP 600 expressly contemplates the tender of sea waybills under letters of credit, where the seawaybill will travel the same itinerary through the banking system as would a bill of lading. 101 At paras 2.18–2.25 above.

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2.36

2.37   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document of authority) without production of this waybill. The Carrier shall be under no liability whatsoever for misdelivery unless caused by the Carrier’s negligence’102. The document may go further to state that ‘[c]arrier to exercise due care ensuring that delivery is made to the proper party. However, in case of incorrect delivery no responsibility will be accepted unless due to fault or neglect on the part of the Carrier’103.

Commercial Justification for Non-presentation 2.37

Presentation is not required for delivery of goods described in a sea waybill because this document is used in commercial contexts where such presentation is not a commercial priority. An ‘order’ bill of lading is used when traders are trading, or at any rate wish to be in a position to trade, on the market, taking advantage of market movements by selling or buying down a string: the use of the word ‘order’ in the ‘consignee’ box says as much. A sea waybill, on the other hand, is used, as we have seen, where there is intended to be but one buyer, the consignee104. In both situations, it is important for all concerned that the carrier will deliver the goods to the right person. However, in the first situation, the possibility of there being a string of buyers makes it necessary for the carrier to demand the best possible proof that the party claiming delivery is entitled to it: and what better proof than the very document itself issued by the carrier on shipment? On the other hand, in the second situation, where only one buyer is in prospect, the party named as consignee, there is little need for presentation of the document if the buyer can establish their entitlement by proving their identity through some other means. To require presentation would either defer discharge or necessitate the chain of indemnities used where the transfer of bills of lading is delayed105. Either consequence is avoided by requiring simple proof of identity rather than presentation when the demand for delivery is made.

Non-presentation and COGSA 1992 2.38

There is nothing in COGSA 1992 to suggest that the Act has in any way changed the position regarding presentation in the context of sea waybills. Nowhere is the consignee for the time being identified as the party entitled to delivery classified by the Act as the ‘holder’ of the document106. There is consequently little doubt that the position remains that, saving contrary instructions given to the carrier by the shipper, the consignee is entitled to demand delivery of the goods described in a sea waybill from the carrier simply by proving that they are the person named as consignee. 102 Maersk Line’s non-negotiable sea waybill. 103 BIMCO’s LINEWAYBILL 2016. 104 The document may also be used, of course, where there is no buyer, that is to say where the shipper ships the goods for his own account. 105 See para 2.25 above. 106 See COGSA 1992 s 2(1)(c).

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The Right to Delivery of the Goods Under COGSA 1992

2.41

‘Straight’ Bills of Lading So far, we have dealt with documents calling themselves sea waybills rather than bills of lading and clearly not intended to enable the transfer of rights in the goods beyond the consignee. We have seen that COGSA  1992 entitles the consignee named on such documents to demand delivery of the goods and that the consignee can make such a demand by establishing their identity without necessarily presenting the document against delivery. Is the situation the same where the document in question is not a sea waybill, but an ordinary bill of lading, calling itself a bill of lading but not containing the word ‘order’ in the ‘consignee’ box107? Does the named consignee have a right, as against the carrier, to demand delivery of the goods and, if so, can they make such a demand without presentation of the bill of lading?

2.39

Straight Bills of Lading are not Bills of Lading At paragraph 2.11 above, we saw that COGSA 1992 does not consider non-order bills of lading to be bills of lading at all. Documents ‘incapable of transfer … by indorsement’ are excluded from the phrase ‘bill of lading’ by section 1(2)(a) and the conventional view is that bills of lading made out simply to the consignee are not capable of transfer by endorsement108. Consequently, consignees named on bills of lading not containing the word ‘order’ in the ‘consignee’ box or elsewhere are not treated by COGSA 1992 s 2(1)(a) as lawful holders of a ‘bill of lading’ having a contractual right to demand delivery of the goods from the carrier.

2.40

Straight Bills of Lading and the Right to Delivery If this exclusion meant that consignees named as such on documents calling themselves bills of lading were not entitled to demand delivery of the goods from the carrier, then the result would indeed be startling. It would be strange if one of many buyers, possibly unknown to the initial seller and almost certainly to the carrier, were entitled to delivery as the holder of an order bill of lading, while one named buyer, known to both the seller and the carrier, were not. This result was clearly not intended by the Law Commissions, which considered that ‘[w]here the bill of lading is not transferable, it will undoubtedly fall within the definition

107 See, for example, BIMCO’s CONGENBILL and the bill of lading used in AP Moller Maersk v Sonaec Villas [2011] 1 Lloyd’s Rep 1. See also The Chitral [2000] 1 Lloyd’s Rep 529, where Steel J held that, where no notify party was indicated in a bill of lading which stated ‘if order state notify party’, it was a straight bill of lading despite the fact that the bill also stated that carrier was to deliver the goods to the consignee ‘or to his or her assigns’. 108 Benjamin at paras 18–094 and 18–100, based on CP Henderson & Co v The Comptoir D’Escompte de Paris (1873) LR 5 PC 253. This case held that a bank to whom a non-order bill had been endorsed was not affected by constructive notice of prior equities simply because the words ‘or order’ were omitted; the decision was not concerned with the question whether the bank was entitled, as against the carrier, to claim delivery of the goods.

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2.41

2.42   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document of sea waybill to be found in [section 1(3) of the Act]’109. Consequently, a person named as a consignee on a non-order bill of lading would have a contractual right to delivery of the goods through COGSA 1992 s 2(1)(b), namely the section dealing primarily with sea waybills.

Straight Bills of Lading and Presentation 2.42

A  question which attracted judicial attention is whether a carrier is bound to require presentation of a straight bill of lading before delivering the goods to the named consignee110. On the one hand, if a straight bill of lading is regarded by COGSA 1992 as a sea waybill, then it should follow that all that is required for delivery is proof of identity, for the same reasons applying to sea waybills set out at paragraph 2.37 above. On the other hand, a straight bill of lading calls itself a bill of lading and ought, therefore, to be presented against delivery of the goods in the normal way. The issue came to prominence because of the decision of the House of Lords in the Rafaela S111, a case where the issue was whether the HagueVisby Rules applied, through COGSA  1971, to a straight bill of lading which in terms required presentation for delivery of the goods. Money turned on the application of the Hague-Visby Rules because, if the Rules applied, that would limit considerably the carrier’s exposure to liability. The answer given by the House of Lords to the relatively narrow question asked was that the Hague-Visby Rules did apply: either because, per Lord Rodger, the bill of lading, albeit straight, was nonetheless a bill of lading within the definition of ‘contract of carriage’ in article I of the Rules112; or, per Lords Steyn and Bingham, the straight bill of lading was a ‘similar document of title’ within the same article113; Lords Nicholls114 and Brown115 agreed with all three of the previously named judges. The question we are discussing in this paragraph – namely whether a consignee named as such on a straight bill of lading is entitled to delivery of the goods on simple proof of identity without presentation of the bill of lading – did not arise in terms in the case. Nonetheless, the issue was raised and there are various dicta in the speeches which indicate that a straight bill of lading needs to be presented for delivery of the goods116. It is doubtful, however, whether such dicta form part of the ratio of the decision – or if they do, whether they apply to straight bills of lading which are silent as to presentation or which explicitly state that proof of identity is sufficient for delivery of the goods. 109 See para 2.50 of Law Comm No 196; also para 4.12: ‘Straight bills of lading … resemble waybills in all material respects, and we wish to treat them alike in legislation’. 110 See Benjamin, paras 18–096 to 18–099 and Aikens, paras 5.46–5.51. 111 The Rafaela S [2005] 1 Lloyd’s Rep 347. 112 [2005] 1 Lloyd’s Rep 347 at 362–363, para [64]. 113 [2005] 1 Lloyd’s Rep 347 per Lord Steyn at 360, para [46], and per Lord Bingham at 354, para [20]. 114 [2005] 1 Lloyd’s Rep 347 at 355, para [26]. 115 [2005] 1 Lloyd’s Rep 347 at 365, para [79]. 116 [2005] 1 Lloyd’s Rep 347 per Lord Bingham at 354, para [20], and per Lord Steyn at 359, para [45].

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2.43

First, if the majority for the decision is composed of Lords Rodger, Nicholls and Brown, then all that was decided was that a straight bill of lading falls within the definition of a ‘bill of lading’ for the purposes of COGSA 1971, and whether such bill needs to be presented for delivery of the goods does not form part of the ratio of the case. Secondly, if, on the other hand, the majority for the decision is composed of Lords Steyn, Bingham, Nicholls and Brown, then the requirement of presentation must be limited to straight bills of lading, stating – as did the bill in the case itself – that the bill of lading needs to be presented for delivery. It was unnecessary to decide the position where the bill of lading is silent as to presentation – and, therefore, dicta in this regard must be treated as obiter117. More importantly, there is nothing in their Lordships’ speeches indicating disagreement with Rix LJ’s suggestion in the Court of Appeal decision in the same case118 stating that clear terms in a straight bill of lading may legitimately make it clear that the goods will be delivered not against presentation but on proof of identity. After the decision of the House of Lords in the Rafaela S, a prudent carrier would protect themselves against an action for misdelivery by an express term in bills of lading stating that, where the bill is used in its straight, non-order form, the carrier can deliver the goods to the named consignee without presentation of the bill on reasonable proof of identity. It is submitted that such a clause is not subject to challenge by the Hague-Visby Rules Article III.8119, given that rightful delivery is not an obligation covered in terms by those Rules. It is also submitted that a bill of lading containing such a clause can validly be tendered under a letter of credit governed by the UCP 600120.

Straight Bills of Lading Under COGSA 1971 and COGSA 1992 Since the decision in the House of Lords in the Rafaela S121, it is clear that straight bills of lading are treated as ‘a bill of lading or … similar document of title’ for the purposes of COGSA 1971 but as a sea waybill, a ‘document which is not a bill of lading’, for the purposes of COGSA 1992122. To treat the same document – and one calling itself a bill of lading – as a bill of lading under one statute but as something other than a bill of lading under another statute within the same jurisdiction (with both statutes even more confusingly bearing the same name) may 117 See, in a similar vein, Aikens at paras 5.47–5.51. However, see Carewins v Bright Future, High Court of Hong Kong Special Administrative Region Court of Appeal (2008) 743 LMLN 3 for the view that presentation is required even of a straight bill of lading which does not in terms require it. 118 [2003] 2 Lloyd’s Rep 113 at 143, para [142]. 119 That is to say, the article which protects cargo-interests against a ‘clause, covenant, or agreement in a contract of carriage relieving the carrier … from liability for … failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules’. 120 In describing bills of lading constituting a complying presentation under the Rules, Article 20 of UCP 600 makes no requirement regarding any clauses on the bill laying down requirements for delivery. 121 [2005] 1 Lloyd’s Rep 347. 122 See COGSA 1992 s 1(3).

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2.44   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document seem inelegant and has been said to put straight bills of lading into ‘something of a legal no man’s land’123. While clearly unattractive in terms of legislative technique, the inconsistency is, perhaps, more apparent than real. The two statutes have a different purpose. COGSA 1992 gives rights of suit and delivery to the consignee named on a sea waybill or a straight bill of lading, two documents which that Act treats similarly for that purpose. With a contract created between the carrier and the named consignee through COGSA 1992, COGSA 1971 then applies the Hague Visby Rules to contracts of carriage recorded in bills of lading or similar documents of title, within which phrase the Rafaela S124 includes straight bills of lading. This is not so much a case of two statutes giving different answers to the same question as a case of two statutes asking different questions: any apparent inconsistency, though possibly unsightly, is more cosmetic than substantive, with the exception of the two points which follow, both of which might cause carriers some surprise.

Survival of the Shipper’s Rights Against the Carrier Under a Straight Bill of Lading 2.44

First, given that a straight bill of lading is, for the purposes of COGSA 1992, a sea waybill rather than a bill of lading, this has the surprising, and to the carrier, undesirable consequence that the shipper’s rights of suit under the original contract of carriage survive any transfer of the document to the consignee125. There seems no reason to suppose that this consequence could not be reversed by appropriate contractual stipulation in the bill of lading.

Named Consignee’s Estoppel on a Straight Bill of Lading 2.45

Secondly, if a straight bill of lading is, according to the Rafaela S126 a ‘bill of lading or … similar document of title’, then it would appear to attract the application of the Hague-Visby Rules Article III.4, which makes statements on the bill of lading about the goods conclusive evidence against the carrier if and when the straight bill of lading is transferred to the named consignee. This may cause some surprise to carriers who might have thought that COGSA 1971 s 1(6)(b) protects them against any such attack, such protection now presumably being limited to ‘non-negotiable document[s] marked as such’, ie sea waybills, but not straight bills. Moreover, contrary contractual stipulation in a straight bill would, it is submitted, in this case be subject to challenge by the Hague-Visby Rules Article III.8127.

123 Aikens at 2.48. 124 [2005] 1 Lloyd’s Rep 347. 125 See COGSA  1992 s  2(5) which extinguishes the shipper’s rights of suit where they transfer a ‘bill of lading’ as defined in the Act, but not where the goods are described in a sea waybill, or, presumably, a non-order bill of lading, treated by the Law Commissions as if it were a sea waybill. 126 [2005] 1 Lloyd’s Rep 347. 127 See fn 119 above.

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The Right to Delivery of the Goods Under COGSA 1992

2.47

(e)  Delivery Orders What Delivery Orders Are and When They are Used Where a shipper ships goods in bulk and, having taken one bill of lading, sells different parcels of the cargo to different buyers, they will need to tender to each of those buyers a document entitling them to delivery of a parcel of goods from the carrier128. The terms ‘delivery order’ and ‘delivery warrant’ are typically used to describe the documents which are normally used in these circumstances. These documents come in many forms, but the buyer’s interests are best served by that form of delivery order known as a ‘ship’s delivery order’, which contains an undertaking129 by the carrier130 to deliver a stated quantity of the goods shipped to a named person131. If, rather than an undertaking by the carrier, a document contains an order by the shipper to the current or prospective possessor of the goods to deliver the goods to the buyer of a parcel of the goods, then the document is not a ‘ship’s’ delivery order, the carrier themselves having given no undertaking to deliver goods132. Typically a single-sided document, a ship’s delivery order will normally refer to the bill of lading originally issued for the goods shipped in bulk and will also incorporate its terms. The document also sometimes states that the goods had been shipped in apparent good order and condition133.

2.46

Delivery Orders Defined by COGSA 1992 A ship’s delivery order is defined for the purposes of the Act by COGSA 1992 s 1(4) as a document which, not being a bill of lading or a sea waybill, contains

128 Colin & Shields v Weddel & Co Ltd [1952] 2 Lloyd’s Rep 9 at 19; Margarine Union GmbH [1967] 2 Lloyd’s Rep 315 at 322; SIAT di dal Ferro v Tradax Overseas SA [1978] 2 Lloyd’s Rep 470 at 493. 129 The carrier’s signature does not suffice to make a delivery order a ship’s delivery order; the carrier must promise delivery to the named person: see Colin & Shields v W Weddel & Co [1952] 2 Lloyd’s Rep 9, where a document signed by the shipowner ordering a third party in possession of the goods to deliver them to a named person was held not to be a ship’s delivery order. 130 The carrier may give the undertaking either by issuing the document themselves or by assuming the duty through an express attornment after its issue by a third party: see Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV [1975] 1 Lloyd’s Rep 146 at 155. 131 Some documents purporting to be ship’s delivery orders name the person entitled to delivery of the goods as ‘order’: see para 2.49 below. 132 Such a document is known variously as a ‘merchant’s’, ‘trader’s’, ‘bare’ or ‘mere’ delivery order. See The Julia [1949] AC 293 and Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV [1975] 1 Lloyd’s Rep 146. See also the delivery order used in The Gosforth [S. en S. 1985 Nr. 91], a case decided by the Commercial Court in Rotterdam which, at any rate in part, led to the enactment of COGSA 1992: see Law Comm No 196, paras 1.2 and 5.31. 133 Where this is the case, it is likely that the buyer can take the benefit of a common law estoppel binding the carrier to statements regarding the apparent order and condition of the goods: see Cremer v General Carriers [1973] 2 Lloyd’s Rep 366; but not the estoppel created by Article III.4 of the Hague-Visby Rules, at any rate unless it is a ship’s delivery order made out ‘to order’: see para 2.49 below. It is clear that the estoppel created by COGSA 1992 s 4 does not apply to statements on ship’s delivery order, that section applying in terms only to bills of lading.

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2.47

2.48   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document an undertaking by a carrier of goods by sea to deliver stated goods to a person identified134 in the document.

The Right to Delivery After COGSA 1992 2.48

COGSA 1992 gives ‘the person to whom delivery of the goods to which a ship’s delivery order135 relates … all rights of suit under the contract of carriage’136. Consequently, the person identified as the party entitled to delivery in the ship’s delivery order has a contractual right, constructed by COGSA 1992, as against the carrier to delivery of the goods.

Ship’s Delivery Orders and Presentation 2.49

Where the ship’s delivery order identifies one named person as the person entitled to delivery, that person need only prove their identity before claiming delivery137. COGSA 1992 s 2(1)(c) does not give the holder of a ship’s delivery order rights of suit as it does to holders of bills of lading in section 2(1)(a): section 2(1)(c) simply gives such rights to the person identified in the document (which may, but need not be, one and the same). This makes good commercial sense where the carrier attorns to one person identified in the document. It would appear, however, that where a ship’s delivery order is made out ‘to order’, the person for the time being identified as the person entitled to delivery, through an endorsement in full (but not in blank) could, in terms of COGSA 1992, still claim delivery on proof of identity, without having to present the document to the carrier. If this is right, then, somewhat perversely, the holder of an ‘order’ bill of lading would be in a worse position, needing to present the document for delivery, than the person identified in a ship’s delivery order, who would not. It is likely in 134 An undertaking by the carrier that the goods will be delivered to a person named in the delivery order is crucial to the document being a delivery order. Thus, where the ‘undertaking’ was to deliver the goods to the first presenter of electronic PIN codes rather than to an intended and named receiver, the document containing that ‘undertaking’ could not be regarded as a delivery order: see the Court of Appeal decision in Glencore International AG v MSC Mediterranean Shipping Company SA and MSC  Home Terminal NV  [2017]  EWCA  Civ 365, [2017] 2 Lloyd’s Rep 186 at [55] and [56]. In the High Court, the judge took the view that there was no undertaking for the different reason that the PIN codes could at any time be revoked, although doing so would have amounted to a breach of contract: see [2015] 2 Lloyd’s Rep 508 at [18]. In the Court of Appeal, Sir Christopher Clarke found the issue of the revocability of the PIN codes not to be ‘particularly fruitful’ (para [35]), preferring to find for the claimant cargo interests on the basis that, as the PIN codes were not addressed to named individuals, the codes could not amount to a delivery order. See para 2.49 below for ship’s delivery orders made out ‘to order’. 135 Defined in COGSA 1992 s 1(4). 136 Defined for this purpose by section 5(1)(b) as ‘the contract under or for the purposes of which the undertaking contained in the order is given’. 137 Cf Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV  [1975] 1 Lloyd’s Rep 146, where, at 155, Kerr J defined the carrier’s undertaking as one to deliver the goods on presentation of the document. Prior to COGSA 1992, such a promise to present, imputed to the buyer, was necessary to provide consideration for the carrier’s undertaking to deliver the goods: see fns 135 and 136 above.

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The Right to Delivery of the Goods Under COGSA 1992

2.51

practice – and certainly advisable – that a carrier who has issued an ‘order’ delivery order will insist on presentation of the document before delivery.

(f)  Multimodal Transport Documents What are Multimodal Transport Documents? Where goods are carried by more than one mode of transport, the seller will typically tender a document that indicates on its face that the goods will be so carried. Thus, such documents will call themselves by titles such as a ‘negotiable combined transport bill of lading’138, a ‘negotiable multimodal transport bill of lading’139, or a ‘Negotiable FIATA Multimodal Transport Bill of Lading’. Although the detailed terms of these documents will differ, they share two characteristic features. First, they all envisage the carriage of the goods by more than one means of transport140, either directly by the contractual carrier or through means procured through the contractual carrier. Secondly, they all state not that the goods have been shipped on the date on which the document is issued, but that they have been received for shipment141 on that date. These documents raise a number of problems142, but the relevant one here is whether or not the named consignee or the endorsee of such a document has a right to delivery of the goods as against the carrier.

2.50

Multimodal Transport Documents and COGSA 1992 The lawful holder of a bill of lading which states the goods to have been received for shipment rather than that they have been shipped has a contractual right to delivery of the goods as against the carrier. It is true that the 1992 Act makes no express mention of multimodal transport documents. However, section 1(2)(b) of the Act clarifies that references in the Act to bills of lading will include bills of lading stating that the goods have been received for shipment. If it is assumed that the courts will consider a multimodal transport document to be a bill of lading

138 COMBICONBILL 2016, issued by BIMCO. 139 MULTIDOC 2016, issued by BIMCO. 140 These documents are also sometimes called ‘through’ bills of lading: see Scrutton at article 197, although the editors concede that this involves using that term loosely; see also Schmitthoff, pp 321–322; and Bateson ‘Through Bills of Lading’ (1889) 5 LQR 424. The term ‘through bill of lading’ might more accurately be used to signify a bill of lading under which the carrier assumes responsibility for the goods from port to port, in unimodal transport, and from point to point, in multimodal transport: see Tetley, pp 2259–2261 and De Wit, Multimodal Transport (1995, LLP), pp 296–309. 141 The phrase used in the Negotiable FIATA  Multimodal Transport Bill of Lading is ‘Taken in charge.’ 142 For a thorough account of other problems raised by combined transport documents, see Benjamin, paras 21–081 to 21–087; Goode Commercial Law, pp 1136–1144; and see J Ramberg, The Multimodal Transport Document [International Carriage of Goods: some Legal problems and Possible Solutions] eds Goode and Schmitthoff 1988, London at pp 1–18.

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2.52   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document whether or not it actually calls itself a ‘bill of lading’143, then it would follow that a lawful holder of a bill of lading envisaging transport by more than one mode of transport, having all rights of suit under the original contract of carriage144, will give the buyer a contractual right to delivery of the goods whether it states that the goods have been shipped or received for shipment.

Multimodal Transport Documents and Presentation 2.52

Given that ‘received for shipment’ bills of lading are considered as bills of lading for the purposes of COGSA 1992, there is no reason to suppose that such bills are subject to any different requirements regarding presentation for delivery of the goods. Thus, given that the Act transfers all rights of suit to the lawful holder with possession of the bill of lading145, it is clear that the Act follows the common law146 in requiring presentation of the bill for delivery of the goods. Moreover, multimodal transport documents typically state expressly on their face that the goods will only be delivered against presentation147.

COMPETING CLAIMANTS TO DELIVERY 2.53

So far in this chapter, we have identified those parties who have a contractual right, as against the carrier, to delivery of the goods represented by the bill of lading or by other shipping documents. They are, broadly speaking, the lawful holders of bills of lading as defined in COGSA  1992 and those to whom the carrier promises to deliver the goods through undertakings made in ship’s delivery orders and sea waybills as defined in the same Act148. The purpose of the remaining part of this chapter is to examine how, if at all, the rights of these parties to delivery of the goods can be prejudiced by competing claims to delivery brought by third parties against the carrier. Such claims may come from any one of a number of sources: the seller themselves; the banks involved in a letter of credit; or the holder of another bill of lading in a set of originals issued in respect of the goods. Each of these cases will be examined in turn and in each case, it will be assumed that COGSA 1992 gives the buyer a clear contractual right to delivery but that another person seeks either to claim delivery

143 This is a safe assumption in the intended absence of a general definition of a ‘bill of lading’ in the Act: see Law Comm No 196, paras 2.49 and 2.50; and D Faber ‘The Problems Arising from Multimodal Transport’ [1996] LMCLQ 503 at 515. 144 Under COGSA 1992 s 1(2)(a). 145 See para 2.10 above. 146 See paras 2.18–2.20 above. 147 Thus BIMCO’s COMBICONBILL  2016 and MULTIDOC  2016; and the Negotiable FIATA Multimodal Transport Bill of Lading. 148 COGSA 1992 s 2(1).

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of the goods for themselves or to instruct the carrier to deliver the goods to some party other than the buyer149.

(a)  Unpaid Sellers and Their Rights of Stoppage in Transit The Unpaid Seller The unpaid seller is the most obvious claimant who might wish to compete with the buyer for delivery of the goods from the carrier. In these circumstances, a buyer who holds a bill of lading or who is a named consignee on a sea waybill or on a straight bill of lading, or who is a person to whom the carrier has acknowledged the duty of delivery on a sea waybill or on a ship’s delivery order may well insist with the carrier on their contractual rights under the contract of carriage as recognised by COGSA 1992. Any of these potential claimants against the carrier are clearly given rights against the carrier; but can those rights be defeated by an unpaid seller to them of the goods? Three issues arise: first, does the seller have a right as against the carrier to instruct the carrier to deliver the goods to someone other than the buyer; secondly, if the carrier obeys such alternative instructions, do they thereby incur liability for misdelivery towards the buyer as the party contractually entitled to delivery under COGSA 1992; thirdly, again if the carrier obeys such alternative instructions, is the seller liable to the buyer under the contract of sale? Each of these questions will be examined in the context of each of the four types of document considered earlier in this chapter, namely, bills of lading, sea waybills, straight bills of lading and ship’s delivery orders.

2.54

The Unpaid Seller, the Carrier and Order Bills of Lading There is no doubt that an unpaid seller still in possession of an order bill of lading has a right under their contract of carriage with the carrier to give the carrier alternative delivery instructions. This is the case even if the buyer appears as the consignee on the document, it being clear on authority that the identification of the consignee on the face of the document is reversible by the consignor before transfer of the bill of lading150. It is only after the seller has transferred the order bill of lading to the buyer that problems arise: here, the unpaid seller has given the buyer, as the lawful holder of a bill of lading under COGSA 1992, a contractual right of delivery to the goods as against the carrier151. Moreover, according to COGSA 1992 s 2(5)(a), the seller has, through the transfer of the bill of lading, lost their own contractual rights as against the carrier, including their right to give

149 The typical way in which these competing rights to delivery of the goods would reach court would be through a CPR Part 86 application, which used to be called an ‘interpleader’ application. 150 See Mitchell v Ede (1840) 11 Ad & El 888 at 903; and The Lycaon [1983] 2 Lloyd’s Rep 548, where the bill of lading had not been transferred and consequently the shipper was held to have been entitled to alter the carrier’s instructions as to delivery. See Benjamin, paras 18–027 to 18–031. 151 COGSA 1992 ss 2(1)(a) and 5(2): the ‘lawful holder’ needs to be a holder ‘in good faith’ rather than ‘for value’; the qualification consequently excludes a thief but not an insolvent defaulter.

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2.56   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document the carrier instructions regarding delivery152. The fact that the seller loses their rights under the contract of carriage to give the carrier delivery instructions does not mean, of course, that the seller will not in fact give such instructions to the carrier, nor that the carrier will not in fact obey them153. If such instructions are given and obeyed, the question then arises whether the seller is liable towards the buyer on the contract of sale. Whether or not they are so liable will depend on whether or not the seller can take advantage of the sections of the SOGA 1979, or an implied term, entitling them to stop the goods in transit, a different issue that will be discussed presently. The point here is that, on transfer of an order bill of lading, the seller loses their right under the contract of carriage to alter the carrier’s delivery instructions.

The Unpaid Seller, the Carrier and Other Documents 2.56

It is important to point out, however, that the seller’s rights under the contract of carriage to alter the carrier’s original delivery instructions are only extinguished where they transfer an order bill of lading. Where the initial contract of carriage between the seller and the carrier is recorded in a sea waybill, a straight bill of lading or a ship’s delivery order, then the seller’s rights under that contract of carriage are not destroyed by the buyer’s contractual right to delivery under the contract of carriage constructed by COGSA 1992154. Here again, the fact that the seller retains the right, as against the carrier, to give the carrier delivery instructions, does not mean that they can give such instructions without being liable to the buyer on the contract of sale, a matter to which we shall come presently.

The Carrier and the Buyer 2.57

If the carrier obeys the seller’s alternative delivery instructions, whether they are bound to do so or not vis-à-vis the seller, does the carrier run the risk of an action for misdelivery vis-à-vis the buyer? If the buyer is the lawful holder of an order bill of lading, as they would be after transfer of the bill of lading by the seller, they are contractually entitled under COGSA  1992 to delivery of the goods155 and that delivery to the seller or to a third party on the seller’s instructions would

152 It would appear that even where the seller is the charterer of the vessel on which the goods are carried, the seller’s rights under the charterparty to give instructions to the carrier do not extend, saving specific terms in the charterparty, to instructing the carrier to deliver without presentation of the bill of lading: Kuwait Petroleum Corporation v I & D Oil Cariers Ltd, The Houda [1994] 2 Lloyd’s Rep 541, particularly at 559. 153 Neither does it mean that a seller who retains ownership or risk in the goods after the bill has been transferred to the buyer loses his right to sue the carrier in tort: see East West v DKBS [2003] 1 Lloyd’s Rep 239 at 255, paras [45] and [46], and see fn 2 above. 154 See the tailpiece of COGSA 1992 s 2(5) and, as far as concerns straight bills of lading, para 2.44 above. 155 See COGSA 1992 s 2(1)(a).

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put the carrier in breach of their contract of carriage with the buyer156. The same would follow where the buyer is a party to whom the carrier has undertaken a duty to deliver in a ship’s delivery order157. On the other hand, where the buyer is simply the party named as consignee under a sea waybill or a straight bill of lading, then they only have a right to delivery as against the carrier while they remain a consignee on that document158, such that instructions from the seller telling the carrier to deliver to a third party transfers those rights to delivery to that third party.

The Seller and the Buyer: The Seller is Prima Facie Liable Under the Sale Contract If the carrier obeys the seller’s alternative delivery instructions, whether or not they are so obliged by their contract of carriage with the seller, the third issue is whether the seller is liable to the buyer for breach of their duty to ship goods under the contract of sale. It would appear that, unless the seller is entitled to stop the goods in transit under SOGA 1979159, or pursuant to an implied term, the buyer can recover against the seller either in contract or in tort. Although, in the circumstances here envisaged, the seller has shipped goods as promised, the seller’s purported alteration of the carrier’s instructions puts them in breach of the implied condition of ‘quiet’ (ie free) possession of the goods160. Moreover, as the carrier’s compliance with the seller’s new instructions would result in a breach by the carrier of the contract of carriage between the carrier and the original consignee161, those instructions are also likely to constitute the tort of unlawful interference with contractual relations for which the seller would be liable to the buyer162.

2.58

The Seller’s Right to Stop the Goods in Transit A  seller giving instructions to the carrier to deliver to someone other than the buyer is not, however, liable to the buyer either in tort or in contract if they have

156 If the shipper gives the carrier alternative delivery instructions prior to the transfer of the bill, a carrier complying with such instructions is not liable to the original consignee in conversion, that consignee not being in possession of a document giving them the right to delivery from the carrier: Mitchell v Ede (1840) 11 Ad & El 888 at 903 and The Lycaon [1983] 2 Lloyd’s Rep 548; see Benjamin at para 18–028. 157 See COGSA 1992 s 2(1)(c). 158 See COGSA 1992 s 5(3). 159 See para 2.59. 160 See Empresa Exportadora de Azucar v Industria Azucarera Nacional SA [1983] 2 Lloyd’s Rep. 171, at 178–180; see also SOGA 1979 s 12(2)(b). 161 At any rate, where the buyer is either the lawful holder of an order bill of lading or the person to whom the carrier has promised delivery under a seaway bill or ship’s delivery order: see para 2.53 above. 162 See Salmond and Heuston on the Law of Torts, R  Heuston, R  Buckley (21st edn, 1996, Sweet & Maxwell), pp 347–356.

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2.60   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document the right, as against the buyer, to stop the goods in transit under SOGA 1979 s 44. The seller is entitled to do so if four conditions are satisfied, namely: (a)

the seller is not paid;

(b)

the buyer is insolvent163;

(c)

the seller has parted with possession of the goods; and

(d)

the goods are in the course of transit164.

Where these conditions are satisfied, the seller is entitled, as against the buyer, either to take possession of the goods or to give the carrier notice of their claim, requiring the latter to re-deliver the goods to the seller at the seller’s expense165.

Stoppage in Transit After Transfer of an Order Bill of Lading 2.60

Where an order bill of lading is in the possession of an unpaid seller, there is nothing remarkable about the seller’s right to stop the goods in transit. Aggrieved by the buyer’s failure to pay, a seller who has made or procured a contract of carriage with the carrier retains a contractual right to give delivery instructions to the carrier, who faces no competing claim by the defaulting buyer, the latter not being the holder of a bill of lading. Where, however, an unpaid seller has transferred an order bill of lading to a buyer who has defaulted, the question then arises whether they are still entitled, as against the buyer, to instruct the carrier not to deliver the goods to the buyer. Ostensibly, it would appear that they can, such that the defaulting buyer cannot recover from the unpaid seller on the basis of the latter’s alternative delivery instructions166. There is doubtless considerable attraction in extending the unpaid seller’s reach over the goods beyond the transfer of the bill of lading to a defaulting buyer. This can, however, create difficulty for the carrier, who may now find themselves facing the buyer claiming delivery of the goods as the holder of the bill of lading under COGSA 1992 s 2(1)(a) and the seller giving them notice of stoppage in transit under SOGA 1979 s 46(1). It is sometimes suggested that the practical solution is for the carrier to interplead167 but it is difficult to see why the carrier should put themselves to the cost and trouble on account of a problem created by the seller’s folly (transferring the bill 163 Defined in SOGA 1979 s 61(4) as occurring when someone has ‘ceased to pay his debts in the ordinary course of business or he cannot pay his debts as they become due, whether he has committed an act of bankruptcy or not, and whether he has become a notour bankrupt or not’. 164 Transit being a necessary condition for the exercise of the right, its duration is defined in detail by SOGA 1979 s 45, which reads in relevant part: ‘(1) Goods are deemed to be in the course of transit from the time when they are delivered to a carrier or other bailee or custodier for the purpose of delivery to the buyer, until the buyer or his agent in that behalf, takes delivery of them from the carrier or other bailee or custodier’. See also the impact on the duration of transit of section 45(6) at fn 168 below. 165 See SOGA 1979 s 46. 166 See Benjamin at paras 15–002 to 15–003, 15–067, 15–085 and 15–087; Chalmers’ Sale of Goods (18th edn, 1981), p 216. 167 Now under CPR Part 86; see also Benjamin at para 15–085.

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of lading before payment) and the buyer’s default (non-payment). It is at least arguable that the seller’s right of stoppage ceases with the transfer of the bill of lading168, such that the carrier can deliver the goods free of a dispute between parties to a contract to which they are not privy and in which they have no commercial interest. If this is right, the unpaid seller who puts themselves in this position through premature transfer of the bill of lading would not, of course, be without remedy against the buyer either for the price if property has passed169, or for damages for breach of contract if it has not.

(b) Banks Unpaid Banks and Delivery of the Goods: the Questions Raised In Chapter 1 we looked in brief at the workings of letters of credit in international trade. Banks are hardly likely in the normal course of events to express much interest in obtaining physical delivery of the goods. When running smoothly, the letter of credit organises the movement of money against documents rather than the delivery of goods to either of the two banks involved in the letter of credit. However where the letter of credit does not run smoothly – and from the banks’ point of view, that means where the buyer fails to reimburse the sum paid under the letter of credit – the banks may well be interested in gaining access to the goods, either by way of physical delivery or by way of selling the goods on through transfer of the shipping documents170. The crucial issue here is whether an unpaid bank can compete with the defaulting buyer for delivery of the goods by the carrier.

2.61

The Banks’ Security: a Pledge by the Applicant Buyer of the Documents and Goods Banks issuing a letter of credit without being put in funds for the amount due before the issuing of the letter will typically protect themselves against a defaulting buyer by inserting in their application form for the credit a clause constituting themselves as pledgees of the documents and of the goods they represent. The clause is expressed in terms such as: 168 Indeed, SOGA 1979 s 45(6) deems transit to be at an end when the carrier ‘wrongfully refuses to deliver the goods to the buyer’ and it is clear that, where the buyer is entitled under his contract of carriage with the carrier to delivery of the goods, refusal by the carrier to deliver the goods to the buyer would be wrongful. See also Debattista ‘The Seller’s right of Stoppage in Goods Carried by Sea – the Carrier’s Dilemma’ in Essays in Honour of Hugo Tiberg (Juristforlaget, Stockholm, 1996) 181. Under the American Uniform Commercial Code, the transfer of an order bill of lading extinguished the seller’s right of stoppage in transit: see 2.705(2)(d) and S Sorkin, Goods in Transit (2006, Matthew Bender) at para 2.16 [1]. 169 SOGA 1979 s 49(1). 170 Whether, and in what circumstances, a bank is able to transfer its interest in the goods which are subject to its security by simple transfer or endorsement of the shipping documents representing them is a matter to which we shall refer in Chapter 3.

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2.63   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document ‘The documents and the goods and all the proceeds of sale and of insurance, and all your rights as unpaid sellers, shall be pledged to the Bank and be security to the Bank for all obligations and liabilities incurred by it or its correspondents in connection with the Letter of Credit (the “Credit”) and for all disbursements in connection with the goods (which you hereby authorise the bank to pay for your account) and, to the fullest extent permitted by law, all your other liabilities to the Bank, present and future.’171 A  similar pledge appears to be implied in favour of the intermediary bank172. The purpose of the pledge is to prevent the buyer from taking possession of the bank’s security by claiming delivery of the goods from the carrier.

Limitations of the Pledge by the Applicant Buyer 2.63

It is easy, however, to exaggerate the importance of the pledge expressly agreed in the contract between the buyer and the issuing bank and implied in favour of the intermediary bank. For one thing, we shall see that since the coming into force of COGSA 1992, the manner in which the bill of lading or other shipping document representing the goods is made out is rather more important to the banks’ position vis-à-vis the goods and the carrier than is the pledge. Secondly, even leaving aside COGSA 1992, it is the ability of the seller to effect the pledge, rather than the buyer’s agreement to establish it, which gives value to the bank’s security in the goods. In The Future Express, Lloyd LJ put it thus173: ‘the bank’s security depends, not on the contract between the buyer and his bank, but on the ability of the seller to pledge the documents of title on his behalf and with his consent.’ Thus in The Future Express itself, the seller had colluded with the buyer in delaying tender of the documents beyond the date on which goods were delivered174 without presentation of a bill of lading made out to the order of the issuing bank. Consequently, that bank had no effective pledge over the goods and could therefore bring no action in tort against the carrier for misdelivery. The Carriage of 171 Lloyds TSB Terms and conditions for Import Letter of Credit at https://commercialbanking. lloydsbank.com/commercial-terms/terms-and-conditions/international-trade/trade-services/ united-arab-emirates-customers/terms-and-conditions-for-import-letter-of-credit/ as at January 2020. For an alternative form of words, see the term in the application for the letter of credit in The Future Express [1993] 2 Lloyd’s Rep 542 at 546. 172 See Jack, para 11.4; and Gutteridge and Megrah, at page 252, para 8.11, who base the implied pledge on the authority of obiter dicta of Scrutton LJ in Guaranty Trust Co of New York v Hannay [1918] 2 KB 623 at 659. 173 [1993] 2 Lloyd’s Rep 542 at 547. 174 For the bank’s pledge to be made ineffective, the goods must have been delivered, without presentation of the bill, to the person entitled to their delivery, rather than simply discharged. Thus, where goods were discharged into a warehouse at the shipowner’s order, the bill of lading was still capable of being pledged after discharge of the goods into the warehouse: Meyerstein v Barber (1866) LR 2CP 38 and Barclays Bank v Customs & Excise [1963] 1 Lloyd’s Rep 81, see (1963) 26 MLR 442.

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Goods by Sea Act 1992 not yet being in force175, neither did the bank have a direct contractual right to delivery as the holder of a bill of lading made out to its order.

Shipping Document Made Out to One of the Banks If a bank needs to secure itself through the goods against default by the applicant buyer, it may find greater assistance from the manner in which the relevant shipping document is made out or endorsed and in ensuring that it holds the complete set of three originals. Where a bank is the consignee or endorsee of an order bill of lading, or the named consignee on a sea waybill or a straight bill of lading or the party to whom the carrier has undertaken delivery through a ship’s delivery order, then that bank has a contractual right to delivery as against the carrier in exactly the same way as the various buyers would in the circumstances set out above176. There is here no question of a contest for delivery between the bank and the buyer: the bank in whom are vested ‘all rights of suit under the contract of carriage as if he had been a party to that contract’ is contractually entitled, as against the carrier, to delivery of the goods177. This does not necessarily mean that a bank unpaid under a letter of credit can exercise this right of delivery without the co-operation of others: thus, if the bill of lading is made out to the order of the confirming bank and the issuing bank remains unpaid by the buyer, the issuing bank will need to ensure that the bill of lading is endorsed to it rather than simply transferred by the confirming bank178. Neither does it mean that the bank’s security interest in the goods is protected in all instances: thus, a bank named as consignee on a sea waybill may find that its contractual right to delivery of the goods is defeated by alternative delivery instructions given to the carrier by the seller179; hence the suggestion that a bank wishing to secure its position over goods described in a sea waybill may best do so by having itself named as consignee and consignor180. Again, the fact that a bank is contractually entitled to delivery of the goods from the carrier under COGSA 1992 does not mean that it can always exercise its security by transferring the bill of lading to a third party buyer: thus, if the bank is the named consignee on a sea waybill or a straight bill of lading or the party to whom the carrier has promised delivery through a ship’s delivery order, then that bank has the right to delivery of the goods, but not the 175 See now the treatment of spent bills at para 2.29 above. 176 See paras 2.18, 2.32, 2.35 and 2.48 above. 177 See COGSA 1992 s 2(1). 178 COGSA 1992 s 5(2)(b) defines the ‘lawful 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.’ Likewise, if the bill of lading was made out to the order of the issuing bank, with the confirming bank remaining unpaid, the confirming bank would need to have the bill of lading endorsed by the issuing bank. See further Debattista, ‘Banks and the Carriage of Goods by Sea: Secure Transport Documents and the UCP 500’ (1994) Butterworths Journal of International Banking and Financial Law 329. 179 See para 2.56 above. 180 The bank would in these circumstances be an original party to the contract of carriage and may, therefore, be liable to the carrier for sums and liabilities due under that contract. See Debattista, ‘Banks and the Carriage of Goods by Sea: Secure Transport Documents and the UCP 500’ (1994) Butterworths Journal of International Banking and Financial Law 329.

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2.65   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document power to transfer that right to third parties181. Neither, finally and fortunately so from the bank’s point of view, does the fact that the bank is entitled to delivery of the goods from the carrier mean that it is necessarily liable on the contract of carriage towards the carrier: COGSA  1992 s  3 makes it clear that the bank becomes so liable only if it takes or demands delivery of goods or if it makes a contractual claim in respect of those goods. It is clear, however, that a bank bringing itself within one of the categories described in COGSA 1992 s 2(1) is contractually entitled to give delivery instructions to the carrier.

Bill of Lading Made Out to the Buyer’s Order 2.65

It is where the bill of lading is made out to the order of the buyer that an unpaid bank holding the shipping documents in pledge, whether express or implied, might face serious difficulty in claiming delivery of the goods from the carrier. If the defaulting buyer were to endorse the bill of lading in the bank’s possession, that would, of course, make the bank a lawful holder of the bill of lading for the purposes of COGSA  1992: however, this expedient requires the active co-operation of the buyer, the party whose default has caused the problem in the first place. The crucial issue is whether the bank holding in pledge a bill of lading made out to the order of the buyer can, without the buyer’s cooperation, make effective use of its pledge by claiming delivery of the goods from the carrier. In practice, a carrier faced with a claim from a bank might well be inclined to deliver the goods against presentation of the bill of lading and against an appropriate indemnity presented by the bank. The question remains, however, does the bank have a right to insist on delivery by virtue of the pledge of the documents? It has been suggested that in these circumstances, the bank’s security is restricted to a lien over the documents rather than a pledgee’s right to the goods represented by the documents182. On the other hand, it has also been suggested that the bank still has a pledge in these circumstances183. From the carrier’s point of view, the former view would be preferable because from their perspective it would be rather surprising if they were entitled and bound to deliver the goods to a bank whose name did not appear on the bill of lading on the basis of a pledge to which they, the carrier, was not a party. On this view, banks advancing credit on the security of bills of lading made out to the order of the buyer would have no simple means of realising their security by claiming delivery of the goods from the carrier. A bank in this position has only itself to blame for this predicament, having failed to insist when accepting to issue or confirm the letter of credit that the bill of lading tendered should be made out to its order or at any rate that the applicant should ensure that the bill of lading is endorsed to the bank184. 181 The issue of transferability will be dealt with separately in Chapter 3. 182 Gutteridge and Megrah, p 212. 183 Jack, p 326. 184 See Gutteridge and Megrah at para 8.15, and the HSBC Application for Irrevocable Letter of Credit, which reads in relevant part ‘we (the applicant) agree to ensure that all such documents are properly endorsed to you and you are hereby authorised to demand the same from any party on your (sic: our?) behalf ’.

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Letter of Trust Unpaid banks may seek to provide their customers with the means of payment of sums due under a letter of credit by surrendering bills of lading to the buyer without immediate payment by the customer. This may seem a strange thing for the bank to do; however, if the buyer of the goods has been unable to put the issuing bank in funds for the sum of the credit, it may be that the only way they can obtain funds with which to satisfy the bank is by selling the goods, and the only way they can do that is by acquiring the documents. The device used is known as a ‘trust receipt’ or ‘letter of trust’ and its effect is to constitute the buyer a trustee for the benefit of the bank of the documents, goods and proceeds thereof. Where the device is in place, the handing over of the documents of title does not extinguish the bank’s pledge185. Moreover, should the buyer become insolvent before they have sold the goods, the bank can claim the goods as its own without competing with the general body of creditors; and should insolvency strike after the sale of the goods, the bank has a prior claim on the proceeds186. This is not to say that the use of the trust receipt is completely free of risk to the bank. Should the buyer, having sold or pledged the goods to a bona fide third party, fail to account for the proceeds to the bank, the third party’s title prevails over that of the bank because the buyer is considered to be the bank’s mercantile agent in the sale or pledge and the third party is consequently protected by the Factors Act 1889 s 2187.

2.66

(c)  Holders of Other Originals in a Set of Bills of Lading Sets So far we have looked at two cargo-interests who might possibly compete with the buyer in their claim for delivery of the goods from the carrier, namely the seller and the banks. Both of these interests are parties to the original export transaction under which the buyer has bought the goods. Our third and last competing claimant is one who has nothing to do with the original transaction other than that they happen to have stumbled upon the bill of lading, or rather, one of a number of originals of the bill of lading. It has long been the practice of traders for shippers to require the 185 The authority cited for this welcome exception to the general rule is somewhat oblique: the case normally put forward is North Western Bank Ltd v John Poynter, Son and Macdonalds [1895] AC 56. The case was a Scottish appeal to the House of Lords and the argument before their Lordships centred on the question whether Scots law was the same as English law on the issue: English law was very much assumed, with no real discussion, to be that the pledgee could hand back the object of the pledge to the pledgor, in the circumstances which obtained, without extinguishing the pledge: see p 68 of the report. For a spirited argument that Scots law is not only different from, but better than, English law on this matter, see A Rodger Pledge of Bills of Lading in Scots Law (1971) Juridical Review 193–213, particularly 203 et seq. See also Gretton Pledge, Bills of Lading, Trusts and Property Law (1990) 1 JR 23. 186 See E Ellinger, E Lomnicka and C Hare, Ellinger’s Modern Banking Law (5th edn, 2011, Oxford) (hereinafter referred to as ‘Ellinger’s Modern Banking Law’) at pp 859–861. 187 See Lloyds Bank Ltd v Bank of America National Trust and Savings Association [1938] 2 KB 147; Mark Chalmer’s Sale of Goods (18th edn, 1981) at pp 295–6; and Benjamin, para 18–288. For ingenious devices whereby this risk is avoided, see Ellinger’s Modern Banking Law at p 861.

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2.68   The Buyer Obtains the Right to Delivery of Goods Through Specific Types of Document carrier to issue several originals of a bill of lading, collectively known as a ‘set’188. Given the need for presentation of the bill of lading at the discharge port, the purpose of the practice has traditionally been to guard against the consequences of loss of the bill: if three originals are issued and sent to the buyer by different means of transport, the chances are that the buyer will receive at least one which they can present at the discharge port for delivery of the goods189.

The Risk of Fraud with Sets 2.68

The problem with the practice of issuing bills of lading in sets has, however, long been recognised. If more than one original of the bill of lading are in circulation, then anyone who takes possession of one original in the set and organises any required endorsements is in a position to present the document at the port of discharge, thereby defrauding the buyer, the intended receiver, of the goods. Carriers protect themselves by making it clear that, when one of the originals is ‘accomplished’, then other originals in the set are, in the timeless language of bills of lading, to ‘stand void’190. In the language of COGSA 1992, although the buyer may well be the lawful holder of a bill of lading for the purposes of section 2(1) (a), the fact of the matter is that the carrier has broken no duty to the buyer: having delivered the goods to another holder of another original who appeared to be the ‘lawful holder’ for the purposes of the same section, the other originals are now to stand void, representing no undertaking to deliver goods. The continued practice of requiring that bills are issued in sets, a practice at once initiated by and harmful to cargo interests, is now actively discouraged by the Uniform Customs and Practice for Documentary Credits which, at article 20(a)(iv) and saving contrary stipulation in the letter of credit, requires the seller to tender ‘a sole original bill of lading or, if issued in more than one original, the full set as indicated on the bill of lading.’ Where payment is not to be effected through a letter of credit, buyers would be well-advised to stipulate for the tender by the seller of the full set of originals if more than one original is issued, given that only an express term in this sense would give the buyer a contractual right to the full set191.

188 See Scrutton, para 5–003. 189 Sanders v Maclean (1883) 11 QBD 327 at 341. 190 Glynn, Mills, Currie & Co v East and West India Dock Co (1882) 7 App Cas 591. 191 Sanders v Maclean (1883) 11 QBD 327.

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Chapter 3

How a Seller Transfers Rights to a Buyer

TRANSFERABILITY IS NOT THE SAME AS NEGOTIABILITY SHIPPING DOCUMENTS THAT ARE TRANSFERABLE (a) Straight Bills of Lading and Sea Waybills are not Transferable (b) Order ‘Received for Shipment’ Bills of Lading and Multimodal Transport Documents are Transferable (c) Endorsed ‘to Order’ Delivery Orders are Transferable SHIPPING DOCUMENTS THAT ARE NEGOTIABLE (a) Bills of Lading are Negotiable (b) Sea Waybills are Arguably Negotiable (c) Other Documents Listed in Section 1(4) of the Factors Act 1889

3.1 3.8 3.8 3.11 3.14 3.15 3.16 3.17 3.18

TRANSFERABILITY IS NOT THE SAME AS NEGOTIABILITY The Absence of Uniformly Accepted Definitions Two adjectives which frequently accompany bills of lading and other documents of title are the words ‘transferable’ and ‘negotiable’. A  clear understanding of what these words mean is hampered in this area of law by the absence of a uniformly accepted definition1 (as it was in the last chapter in the discussion on what a ‘document of title’ meant). As we shall see, although in commercial circles the words ‘transferable’ and ‘negotiable’ are used interchangeably, they actually mean different things legally2. This chapter explores these two related terms and how they interact with the phrase ‘document of title’.

1

2

See paras 2.2 and 2.4 above. See also A M Tettenborn ‘Transferable and negotiable documents of title – a redefinition?’ [1991]  LMCLQ  583, at p  542: ‘The definition of the concepts of transferability and negotiability is a difficult matter, and one on which it is difficult to extract an uncontroversial view from either the decided cases or the commentators.’ See also Girvin; ‘Bills of Lading and Straight Bills of Lading – Principles and Practice’ [2006] JBL 86 especially at p 89. Thus, when GAFTA  100 (effective 1  September 2010) requires, at clause 12(b), that the bill of lading or other shipping document tendered be ‘in negotiable and transferable form’, is it demanding the presence of two characteristics or one?

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3.1

3.2

How a Seller Transfers Rights to a Buyer

Transferability in General 3.2

In common law, ‘transferable’ documents enable the holder of that document to transfer: (1) constructive possession of goods (and the consequent ability to demand delivery of those goods); and (2) the rights of suit that attach to that document, without assignment or novation (as would normally be required under a simple contract). To understand better the history of this right to transfer and what we mean when we call a document ‘transferable’, we need to tap into a number of fundamental concepts in the law relating to personal property3. We should start with the historical reluctance of the common law to contemplate the transfer by A to B of things in action (ie rights to sue), as opposed to that of things in possession4: a transfer of the latter, being tangible movables, could readily be identified and observed; a transfer of the former, being intangible, could not. Moreover, the ethereal nature of such a transfer, if recognised, might bring with it the danger of maintenance, that is to say the pursuit of remedies in the courts by those who lacked any legitimate interest in the original substance of the claim5. The common law’s sensitivities to the transfer of things in action gradually waned, the courts of equity first6, and then Parliament, through the Law of Property Act 19257 (LPA 1925), came to accommodate the transfer of things in action. However, the point of more direct relevance to us here is that, even before developments in equity and under statute, the common law recognised the transfer by delivery, sometimes accompanied by endorsement, of certain specific types of things in action which were considered ‘to be locked up in [a] document’8. These things in action were of two types, rights to goods and rights to the payment of money; there were consequently two species of document each symbolising such rights: documents ‘of title’ to goods and documents ‘of title’ to money, normally called ‘instruments’. The transfer of either type of document from A to B passed the right ‘locked up in’ the document without the need of any formal assignment or of any notice to the debtor of the obligation. The document – and, crucially, the rights attaching to that document – was in this sense freely transferable and it was this quality which earned it classification by the common law as a ‘document of title’, meaning a document where the right to sue inhered in 3

For a lucid account of the impact of such principles across the general area of commercial law, see Goode Commercial Law, particularly at pages 51–53. 4 A ‘thing in action’, as opposed to a ‘thing in possession’, is one which does not exist in the physical world and which is consequently not susceptible to physical possession. See Halsbury’s Laws of England (6th edn, 2017, LNUK) Vol 13 para 1(1)1 (chose in action). 5 See Chitty, paras 16.078–16.080. 6 The assignee was allowed to sue the debtor in the assignor’s name and, if the assignor refused to cooperate in such an action, they could be compelled to do so in equity: see Chitty, para 19.002. 7 Section 136(1): ‘Any absolute assignment by writing under the hand of the assignor … of any … legal thing in action, of which express notice in writing has been given to the … person from whom the assignor would have been entitled to claim such … thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice: the legal right to such … thing in action; the legal and other remedies for the same; the power to give a good discharge for the same without the concurrence of the assignor’. 8 Goode Commercial Law, p 52 at 2.57.

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3.4

the document itself via its lawful possession, and not only in the person originally named in the contract.

Transferability and Bills of Lading Applying these principles of personal property law to bills of lading, two crucial points need to be made. First, only bills of lading bearing explicit evidence of their transferability are recognised by mercantile custom as ‘documents of title’ at common law9, that is to say in the common law sense that the transfer of the document passes from shipper to receiver rights vis-à-vis the goods as against the carrier without the need of assignment or novation by the shipper to the receiver or of notification to the carrier. Such evidence is inferred from the designation of the consignee in the appropriate box on the front page10 as either ‘Buyer or Order’ or simply as ‘Order’ or through other wording to similar effect on the bill of lading11. Secondly, it follows that shipping documents that do not call themselves bills of lading, bills of lading lacking the word ‘Order’, and bills of lading explicitly describing themselves as non-transferable12 are not documents of title at common law, because the rights and obligations under them cannot be transferred without assignment/novation.

3.3

Transferability and the Right to Delivery The right to claim delivery from the carrier is quite different from the power to pass that right to others through transfer of the document. It is, therefore, perfectly consistent for a person named on a ship’s delivery order as the person to whom delivery of the goods is to be made to have the right to claim possession of the goods under COGSA 1992 s 2(1)(c); yet not to be recognised by the common law as having the power to transfer that right to an on-buyer through simple transfer of the ship’s delivery order. A ship’s delivery order is a document recognised by COGSA 1992 as one giving the person named therein a right to the delivery of 9 See Benjamin at para  18–005; and Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53, 60 and Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439. 10 If the consignee box does not contain the word ‘order’ but the bill contains elsewhere, at any rate on its front page, an undertaking that the carrier will deliver the goods to the consignee ‘or to his or their assigns’ the bill is nonetheless transferable: see The Happy Ranger [2002] 2 Lloyd’s Rep 357 at 363 per Tuckey LJ. Cf where such a bill also contains, in the consignee box, the words ‘if order state notify party’: The Chitral [2000]1 Lloyd’s Rep 529 at paras 18–19. 11 Benjamin, para 18–022; Scrutton, article 110 at p 235; and Bennett, The History and Present Position of the Bill of Lading as a Document of Title to Goods (Cambridge University Press, 1914) (hereinafter referred to as ‘Bennett History’) at p  17. For a comparative historical description of how mercantile custom came to regard such bills of lading as transferable, see B Kozolchyk ‘Evolution and Present State of the Ocean Bill of Lading from a Banking Law Perspective’, in Commercial and Consumer Law, National and International Dimensions (1992, 147, particularly at 149–161); see also AP Møller-Maersk A/S v Sonaec Villas [2010] EWHC 355 (Comm), [2011] 1 Lloyd’s Rep 1. 12 Although the market is more likely to use, somewhat confusingly as we shall presently see, the word ‘non-negotiable’: see Goode Commercial Law at p  52, footnote 167. Kerr LJ in Procter & Gamble v Becher [1988] 2 Lloyd’s Rep 21, at col 1 p 30, considered that ‘transferable’ was the more accurate term to describe a bill of lading that would be freely passed down a string.

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3.4

3.5

How a Seller Transfers Rights to a Buyer

the goods; but it is not a document of title at common law facilitating transfer of that right to delivery through transfer of the document to a third party. Likewise, a person named as consignee on a sea waybill or a bill of lading not made out to order has rights against the carrier under COGSA  1992, including the right to ask the carrier for the goods, but does not have the power to pass that right on through transfer of the document to an on-buyer. Accordingly, while a bill of lading endowed with the function ‘Order’ is recognised as transferable by the common law, as we saw in Chapter 2 straight/non-order bills of lading and indeed some other documents (like delivery order) are not. The persons named in stated capacities in these other documents may have contractual rights against the carrier, including above all the right to demand delivery of the goods13, but they cannot transfer those rights to third parties. Money turns on this distinction because a buyer, entitled under a sale contract to a document which gives the buyer not only (1) the right to delivery and (2) rights of suit but also (3) the power to pass those rights on by transferring the document, may legitimately reject a document which gives the right to delivery and rights of suit, but which does not enable that buyer to transfer such rights to a third party, because it is not recognised by the common law as a document of title that is transferable.

Transferability and Negotiability Distinguished 3.5

The question of transferability can become practically problematic because commercial people frequently use the words ‘transferability’ and ‘negotiability’ interchangeably when they mean different things14. While it would be impossible, in the unruly marketplace of international trade, to discipline these words into uniform usage, it would assist the handling of disputes if we allocated each of the two words to two quite different concepts. ‘Transferability’, in the sense described earlier in this chapter, explains how the right to claim delivery of the goods and other rights of suit from the carrier granted to a number of stipulated persons by COGSA 1992 can be transferred at common law from one trader to another without involving the carrier in every transfer. ‘Negotiability’ refers to that feature of documents ‘of title’, listed in the Factors Act 1889, whereby certain transferees can, in circumstances stipulated by the Sale of Goods Act 1979 (SOGA  1979), obtain title to money or goods better than

13 See paras 2.7–2.18, 2.35, 2.41–2.42 and 2.47. 14 See, for example, Henderson v Comptoir d’Escompte de Paris (1873) LR 5 PC 253, at 259. See Goode’s warnings in this regard, Commercial Law, at p 52, footnote 167 and also p 532, footnote 55 for a similar point on ‘negotiable instrument’. Ambiguity in the use of the word ‘negotiability’ has troubled commentators for some time: for an entertainingly exasperated account, see J S Ewart ‘Negotiability and Estoppel’ (1900) 16 LQR 135, particularly 135–143 and 156.

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3.7

that of any pretender, even if the title of their transferor was itself defective15. The comparison here is not between the rights of traders to claim delivery of the goods from the carrier; it is between the contending rights to the ownership of the goods among traders or, more frequently than not, between traders and their creditors. It is important to be clear about the meaning of the words ‘transferability’ and ‘negotiability’, because the concepts they mask are relevant to different types of dispute between different types of parties. Moreover, clarity in the terminology is also important because the words ‘negotiable’ or ‘non-negotiable’ and the phrase ‘document(s) of title’ are used, without definition, in COGSA 1971, the applicability of specific sections of which may well turn on narrow questions of definition. Thus, for example, section 1(6)(b) of the 1971 Act applies the HagueVisby Rules to a ‘non-negotiable document marked as such’ if the document incorporates the Rules. These documents, known more frequently as sea waybills16, will be discussed at a later stage in this chapter. Suffice it to say here, however, that the word ‘non-negotiable’ is used here, somewhat unhelpfully – by COGSA 1971, just as it would be by the market – to mean ‘non-transferable’, referring to the well-recognised inability of the document to pass, through its transfer, the right to claim the goods from the carrier17. Also, COGSA  1971 includes within its definition of a bill of lading one not made out to order18 even though the rights of suit that are recorded on it cannot be transferred by the consignee to an on-buyer.

3.6

‘Documents of Title’, ‘Negotiability’ and ‘Transferability’ in the Factors Act 1889 and SOGA 1979 The phrase ‘document of title’ can encompass both negotiable and/or transferable documents. The phrase ‘document of title’ can therefore lead to some confusion as it could refer to a document which is negotiable but not transferable, or one which is both negotiable and transferable. Accordingly, when attempting to ask what type of document of title one is dealing with, it is important first to identify which question(s) we are trying to answer: when the question being asked is: ‘Does the holder of this document have the power to pass to others their right to demand delivery of the goods from the carrier?’, the answer is found in the common law. When, on the other hand, the question being asked is: ‘Has the holder of this document acquired from their transferor a title to the goods which is better than that of previous holders, in the sense that claims by previous holders 15 See Goode Commerical Law, at p 52, footnote 167, the ‘narrow’ of the two senses of the word ‘negotiable’ there mentioned. 16 See paras 2.32–2.33 above. 17 See also the Hague-Visby Rules art VI, and its use of the phrase ‘non-negotiable’ to mean, pace Scrutton at article  110, note 2 and p  397, ‘not transferable’. For a comprehensive survey of definitional problems in a number of relevant statutes, see C W O’Hare Shipping Documentation for the Carriage of Goods and the Hamburg Rules (1978) 52 ALJ 415 at 420–422. 18 Either because it is a bill of lading (per Lord Rodger at para 70) or because it is a similar ‘document of title’ for the purposes of the 1971 Act (per Lords Steyn at para 44 and Bingham at para 20): The Rafaela S [2005] 1 Lloyd’s Rep 347.

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3.7

3.7

How a Seller Transfers Rights to a Buyer

can be defeated?’, then the answer is found in s 1(4) of the Factors Act 1889 and in SOGA 1979 ss 24–26 and 47. The Factors Act 1889 lists documents of title for the purposes of SOGA 1979, which itself sets out the circumstances in which those documents are treated as negotiable19. Given the difference between these two questions, there is no inconsistency between the common law recognising only one document as ‘transferable’ (an ‘Order’ bill of lading, as we previously saw) and the Factors Act 1889 listing several documents as documents of title made ‘negotiable’ by SOGA 197920. Thus, bar ‘Order’ bills of lading, the documents listed in s 1(4) of the Factors Act 1889 are negotiable without being transferable: where the relevant statutory requirements are satisfied21, these documents transfer to their holders a better title than that enjoyed by previous holders. Their transfer to a third party does not, however, without the specific acknowledgement – or ‘attornment’ – to this effect by the carrier22, give the holder the right to demand delivery of the goods23 from the carrier, who may24 insist on checking with the shipper of the goods whether the 19 These circumstances are, broadly, that where a paid seller or a defaulting buyer transfers a document of title to a third party transferee in good faith, the transferee acquires a better title than that of the transferor and, therefore, than that of the buyer who paid the seller in the first case and than that of the unpaid seller in the second. 20 Sir Roy Goode, in Goode Proprietary Rights, makes the point, at pp 86–87, that the statutory list is wider, not simply longer, than the common law’s list of one, in that s 1(4) of the Factors Act 1889 includes an order to an actual possessor as well as an undertaking given by such a person. Because of SOGA 1979 s 29(4), reproduced at fn 22 below, such an order does not, of course, transfer constructive possession of the goods, lacking as it does an acknowledgement by the carrier: it would, though, give the buyer a right to sue the seller for damages for failure to procure to the buyer a right of possession: see Goode Proprietary Rights at pp 94–95. 21 For a detailed analysis of the relevant sections of the Factors Act 1889 and SOGA 1979, see Benjamin, Chapter 7. The periodical literature is prolific, but Goode Proprietary Rights at pp 95–96 is of particular relevance to international sales, as is L A Rutherford and I A Todd ‘Section 25 of the Sale of Goods Act: The Reluctance to Create a Mercantile Agency’ (1979) 38 CLJ 346. 22 See SOGA 1979 s 29(4), which reads: ‘When the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods.’ The section provides us with a nice illustration of the difficulties caused by problems of definition. If, by ‘document of title’, the statute here means ‘as defined in s 1(4) of the Factors Act’, then presumably no attornment is required for delivery orders to pass the right of control to the transferee, because the caveat would take those documents outwith the mischief of the requirement of attornment. To avoid that result, (flying as it would in the face of several authorities, among which Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV  [1975] 1 Lloyd’s  146 at 154), we need to interpret the phrase ‘document of title’ in this section in a common law sense, despite the fact that SOGA 1979 itself adopts the definition of ‘document of title’ given in the Factors Act 1889: this is, in effect, what the editors of Benjamin do at paras 18–089 and 8–013. 23 Although attornment is not necessary for better title to pass in the circumstances allowed by the statute: see Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 at 60 and Benjamin, para 18–192. 24 Indeed, probably must, as a matter of contract between themselves and the shipper, at any rate where a bill of lading has been issued covering an amount larger than that quantified in, say, the delivery order; this, because of the presentation rule described at paras 2.19–2.20 above.

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Shipping Documents That are Transferable

3.9

holder of the document is the appropriate receiver of the goods. More succinctly, these documents ‘of title’ do not, by virtue of their inclusion in a statutory list going to ‘negotiability’, transfer constructive possession of the goods25.

SHIPPING DOCUMENTS THAT ARE TRANSFERABLE (a)  Straight Bills of Lading and Sea Waybills are not Transferable We saw earlier in this chapter that bills of lading made out simply ‘to order’ or to the order of a named consignee are transferable at common law, in the sense that the transfer of the first and the transfer and endorsement of the second gives, respectively to the transferee and to the endorsee, the right to claim possession of the goods from the carrier. We also saw, however, in Chapter 2 that persons for the time being named as consignees on sea waybills26 and on straight bills of lading27 have a right to demand delivery of the goods from the carrier without, in the absence of express stipulation in the document to the contrary, physically presenting the document to the carrier28. However, the authorities are clear that only order bills of lading are invested by the common law with the characteristic of transferability29. It follows that the consignee named on a straight bill of lading or on a sea waybill, although themselves having the right to delivery of the goods from the carrier, at any rate while they remain named as consignees on the document30, do not have the power to transfer that right to a third-party on-buyer through the mere transfer and endorsement of the document31. Consequently, sea waybills and straight bills of lading are typically used in circumstances where no such on-sale during transit is envisaged by the parties32.

3.8

Commercial circumstances may arise, however, where buyers of goods covered by such documents may wish to sell those goods on while they are in transit with the carrier: how can this be engineered, given the fact that these documents are not recognised as transferable by the common law? Specifically, how would the on-buyer receive the rights of suit under the contract of carriage and the right to demand delivery of the goods by the carrier? Where S, the shipper of goods covered by a straight bill or by a sea waybill, sells to B, and B wishes to sell on the

3.9

25 26 27 28 29 30

See Benjamin, para 18–188. See para 2.35 above. See paras 2.41–2.42 above. See paras 2.36–2.37 and 2.42 above. See para 3.3 and fn 9 above. The shipper having the right, as against the carrier, to give alternative delivery instructions to the carrier up to the time of discharge: see COGSA 1992 ss 1(3)(b), 5(3) and 2(5). 31 See Benjamin, para 18–025. Some sea waybills take the trouble to make explicit the point that they are not documents of title at common law: see Chemtankwaybill 85, Conditions of Carriage 1, which states: ‘This Waybill, which is not a document of title at common law, is subject to the terms and conditions, liberties and exceptions of the Voyage Charter Party dated as overleaf and to the provisions set out below’. 32 See para 2.33.

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3.10

How a Seller Transfers Rights to a Buyer

goods while in transit to B1, then B would need to ask S, the original shipper of the goods, to instruct the carrier to deliver the goods to B1. The transfer of the document by B to B1 is neither necessary nor sufficient of itself to transfer the right of delivery of the goods to B1. Not being transferable at common law, the physical possession of the document would not entitle B1 to demand delivery of the goods from the carrier. Moreover, although B has a contract of carriage by virtue of COGSA 199233, this contract does not eclipse S’s ability to request the carrier to deliver the goods to someone other than B34. Consequently, the power of diverting the right to delivery of the goods from B to B1 lies with S, who could, if asked by B, agree with the carrier to deliver the goods to B1.

Tender of Straight Bills of Lading and Sea Waybills Under the Contract of Sale 3.10

If straight bills of lading and sea waybills are not recognised as transferable by the common law, the question arises as to whether a seller tendering such a document is entitled to payment. Money may well turn on the question where the market has moved against the buyer in the interval between the conclusion of the contract of sale and the moment at which documents are tendered for payment. The answer will depend on the underlying sale contract between buyer and seller. If the sale contract expressly provides for tender of such documents for payment, then the answer is clear: the seller is entitled to payment against tender of such documents35. Conversely, if the sale contract expressly prohibits the tender of such documents in exchange for payment, then tender of them will not entitle the seller to payment. But where the sale contract simply stipulates for the tender of a bill of lading, without expressly indicating whether the bill of lading must be transferable, the issue requires clarification. The better view appears to be that the tender of a non-transferable document, at any rate of a sea waybill, is not a valid tender entitling the seller to payment36. A  buyer of goods under a documentary sale on shipment terms would normally expect to receive not only a document which gives the buyer the right to ask the carrier for delivery but also one which enables the buyer to sell the goods through transfer or endorsement of the document. A sea waybill does not give the buyer this facility.

33 See COGSA 1992 s 2(1)(b). 34 See COGSA 1992 s 5(3). 35 A buyer would, of course, be extremely ill-advised to contract on terms providing for payment against tender of a non-transferable document in circumstances where they had reason to believe that the shipper of the goods might abuse the right they undoubtedly retain under COGSA 1992 to give the carrier alternative shipping instructions: see section 5(3) of the Act. In these circumstances, the buyer could attempt to secure their position by insisting in the sale contract that the document tendered contain a clause in which the shipper undertakes not to give such alternative instructions. 36 A  conclusion reached by Sassoon at para  5–042 (see paras 5–011 and 5–043 to 5–044 for straight bills); and by R Williams, in ‘Waybills and Short Form Documents: A Lawyer’s View’, 1979 LMCLQ 297 at 313.

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Shipping Documents That are Transferable

3.11

The position appears to be different in CIF contracts incorporating Incoterms 2020. Under the Incoterm CIF art A6, sea waybills are included within documents which may be tendered, subject only to the condition that the documents tendered ‘enable the buyer to claim the goods from the carrier at destination37 and, unless otherwise agreed38, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer (the negotiable bill of lading) or39 by notification to the carrier’. Insofar as a buyer named as consignee on a sea waybill or a straight bill of lading can procure instructions from the seller that the carrier delivers goods to a third party, it would appear that a CIF seller can tender such a document and demand payment, where Incoterms 2020 are incorporated into the sale contract.

(b)  Order ‘Received for Shipment’ Bills of Lading and Multimodal Transport Documents are Transferable Section 2(1)(b) of COGSA  1992 expressly states that references in the Act to a bill of lading are to include references to a ‘received for shipment bill’. Consequently, the holder of a ‘received for shipment’ bill of lading is in exactly the same position as the holder of a ‘shipped’ bill of lading in that both have a contractual right to demand delivery of the goods from the carrier40. The question here is whether a consignee holding such a document has the power to transfer their right to delivery to an endorsee of the bill. This question causes particular difficulties in the container trade, where bills of lading41 typically describe the containers as having been received for shipment. This is hardly surprising in view of the type of cargo to which such documents relate: containers are frequently collected by carriers or their agents at inland container depots at a considerable distance from the point at which goods have traditionally been delivered to the carrier, namely, the ship’s rail. The question

37 38 39 40 41

A facility given to the buyer by COGSA 1992 s 2(1)(b). For example, if the sale contract expressly stipulates for the tender of an order bill of lading. Emphasis added. See paras 2.12 and 2.51 above. Bills of lading contemplating the shipment of goods in containers are known by a number of names. Thus, Atlantic Container Line Ltd call their document simply a Bill of Lading; COMBICONBILL calls itself a ‘Combined Transport Bill of Lading’; and BIMCO’s MULTIDOC 95 is called a ‘Negotiable Multimodal Transport Bill of Lading’. In Scrutton, these documents are also called ‘through’ bills of lading, although the editors concede that this involves using that term loosely: see article 197; see also Schmitthoff, para 15–029; and Bateson ‘Through Bills of lading’ (1889) 20 LQR 424. The term ‘through bill of lading’ might more accurately be used to signify a bill of lading under which the carrier assumes responsibility for the goods from port to port, in unimodal transport, and from point to point, in multimodal transport: see Tetley, paras 2259–2261.

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How a Seller Transfers Rights to a Buyer

whether ‘received for shipment’ bills are transferable will consequently be asked in the context of combined transport documents42.

‘Received for Shipment’ Documents are Transferable 3.12

Although there is a dearth of case law in this area, we suggest that ‘received for shipment’ bills of lading are transferable and that the position was settled by COGSA 1992 s 1(2)(b). If references in the Act to bills of lading are to be taken, according to that section, to include references to ‘received for shipment’ bills of lading, then it follows that the lawful holder of such a bill has a contractual right to delivery of the goods by virtue of section 2(1)(a), the general section which transfers contractual rights and constructive possession from the shipper of goods to the lawful holder of a bill of lading. That consequence would appear to follow whichever of the two limbs of the definition of a ‘lawful holder’ envisaged in section 5, was satisfied, namely the original consignee contemplated in section 5(2)(a) or an endorsee envisaged in section 5(2)(b)43. Historically, the position was different and was traditionally the preserve of the common law, which, armed with the decision in Lickbarrow v Mason44, jealously guarded the proposition that only ‘shipped’ bills of lading are documents of title at common law45. It was commonly said that bills of lading are only documents of title if they confirm that goods have been shipped on board46. It was consequently said to follow that combined transport documents could not, for this reason, be

42 These documents do raise other problems, for a thorough account of which reference is made to Benjamin, paras 21–081 to 21–085; Goode Commercial Law, pp 1138–1140 at paras 36.83– 36.84; and see also J Ramberg ‘The Multimodal Transport Document’, International Carriage of Goods: some legal problems and possible solutions (eds C  M  Schmitthoff and R  Goode, Queen Mary College (University of London) Centre for Commercial Law, 1988, at pp 1–18). The International Chamber of Commerce (ICC) has sought to solve a number of the problems caused by multimodal transport in the law of carriage through the adoption of the UNCTAD/ICC Rules for Multimodal Transport Documents, ICC  Publication No  481; see Benjamin, para  21–084; Goode Commercial Law, pp 1138–1140 at paras 36.83–36.84. 43 It is true that section 1(2)(b) subjects the inclusion of ‘received for shipment’ bills of lading to section 1(2)(a) which states that references in the Act to bills of lading ‘do not include references to a document which is incapable of transfer by endorsement …’. However, if the caveat in section 1(2)(a) were to be interpreted to exclude ‘received for shipment’ bills of lading, it would be difficult to give any meaning to section 1(2)(b). 44 This case went through long and protracted litigation: (1787) 2 TR 63; reversed by the Exchequer Chamber at (1790) 1 H Bl 357; restored and venire de novo ordered by the House of Lords at (1793) 2 H Bl 211; second trial reported at (1794) 5 T R 683; see also the note to Newsom v Thornton (1805) 6 East 17, 20n for the opinion of Buller J advising the House of Lords. All the judgments in the case are reproduced at 1 Smith’s Leading Cases, 703. 45 Lickbarrow v Mason decided that a bill of lading stating goods to have been received for shipment was not a document of title at common law and that its transfer did not consequently give the buyer a bailor’s right as against the carrier to the delivery of the goods. 46 See, for example, Benjamin, paras 18–090, 18–045; Scrutton, article 199; Goode Commercial Law, pp 933–935 at paras 32.50–32.53; and Tetley, para 2264.

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considered to be documents of title47. However, the use of combined transport documents is so widespread and, to judge by the dearth of case law in the area, so free of trouble that it seems difficult and somewhat remote from reality to continue to suggest that there is something seriously wrong in law with these documents. Even before COGSA 1992, it was possible to argue that the traditional view that ‘received for shipment’ bills of lading were non-transferable was either suspect or overtaken by a legally binding custom to the opposite effect48. We suggest that COGSA 1992 makes ‘received for shipment’ bills of lading transferable.

Consequences if ‘Received for Shipment’ Documents are Transferable If such documents are transferable, then two significant consequences follow. First, a buyer could not reject a combined transport document/‘received for shipment’ bill of lading on the ground that it does not give the buyer the power to transfer to a third party the right to claim delivery of the goods from the carrier49. Secondly, once the lawful holder of such a bill of lading (whether that be the original consignee or an endorsee from that consignee) derives a contract of carriage with the carrier through transfer of the bill of lading, then the many

47 See, for example, Benjamin, para 21–083: ‘In view of the above difficulties it seems that, in the present state of the authorities, a shipper who wanted to be sure of getting a document of title in the traditional common law sense would need to obtain a separate bill of lading for the part of the transit involving carriage by sea’. See also para 21.083 where the editors suggest that, ‘This difficulty can be overcome, once the goods had been put on board, by making a notation to this effect on the combined transport document.’; Sassoon at para 5–042: ‘Whether a CIF seller may tender such a document in performance of his contract (absent agreement thereon) is unsettled and unclear. However, the fact that the document usually does not establish privity with the shipowner could be construed as curtailing the rights of the CIF buyer and (it is thought) may be a valid ground for rejecting the same’; Scrutton at article 199: ‘it is submitted that there would now be little difficulty in establishing that [combined transport bills of lading] are by custom treated as transferable documents of title … A combined transport bill of lading providing for carriage partly by sea and partly by some other means of transport is not a valid tender under a CIF contract, in the absence of agreement or usage to that effect; if the express terms of the contract provide for carriage by sea, evidence of such a usage will not be admitted’. See also S Mankabady Some Legal Aspects of the Carriage of Goods by Container [1974] 23 ICLQ 317, at 321–2. 48 See the first edition of this book at pp 211–228. 49 If the proposition in the text were correct, the decision, at first instance, of McCardie J in Diamond Alkali Corpn v Bourgeois [1921] 3 KB 443 would need to be revisited. This decision is described by Carver as ‘unusually unsatisfactory’: see Carver at para 1613, footnote 93. Now see Carver on Bills of Lading, paras 2.024–2.027. It should be added, however, that old canards die hard. Incoterms 2020, FCA A6/B6 envisage, rather curiously, the tender of an on-board bill of lading: FCA sales are normally used for sale contracts where the goods are delivered by handing the goods over to a multimodal transport carrier at an inland point, where the carrier is far more likely to state that the goods have been received for shipment rather than that they have been shipped on board. The rather curious solution of providing for a shipped bill of lading, where a received for shipment one should do, is explained at [63]–[66] of the introduction to Incoterms 2020: in essence, the concern leading to the ‘unhappy union’ was the banking industry’s impression that a received for shipment bill of lading was, in some important sense, less valuable a means of holding a security interest in the goods than a shipped on board bill of lading.

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3.14

How a Seller Transfers Rights to a Buyer

clauses in bills of lading used by the trade, to include holders other than the consignee within the contract of carriage with the carrier, would appear otiose50.

(c)  Endorsed ‘to Order’ Delivery Orders are Transferable 3.14

We have already seen that delivery orders are typically used where the seller needs to divide the right to demand delivery of a bulk cargo from the carrier among several buyers where that cargo is covered by one bill of lading51. In a ship’s delivery order, the carrier undertakes to deliver a stipulated quantity of the goods on a vessel to a named person: we saw also that the named person is now given a contractual right to demand delivery of the stipulated quantity by COGSA 1992 s 2(1)(c)52. The document has not traditionally been regarded, however, as one which can pass that right on through mere transfer53. On occasion, though, ship’s delivery orders are made out ‘to order’54. This is not very surprising, given that delivery orders are frequently used to cover commodities shipped in bulk where market fluctuations make it not unlikely that traders will want to sell the goods while in transit. It is now clear that such a document is a ship’s delivery order for the purposes of COGSA  1992 s  5(3) which covers documents that allow for the variation of the identity of the person entitled to delivery. Thus, where a ship’s delivery order is made out ‘to order’, an on-buyer named on the document would have a contractual right as against the carrier to the delivery of the goods55: it is suggested that a renewed attornment by the carrier to the on-buyer is rendered unnecessary by the willingness of the carrier to issue the delivery order ‘to order’ in the first place. It is, however, doubtful whether the on-buyer would derive a contractual right to delivery through an endorsement of a ‘to order’ ship’s delivery order that is left blank. It is, for instance, difficult to consider such a person as a person ‘identified’ as a party entitled to delivery under COGSA  1992 s  1(4)(b), even given the expanded description of such a person in section 5(3). If this is right, a buyer to whom a 50 See, for example, the Maersk Bill of Lading for Ocean Transport or Multimodal Transport, which defines ‘Merchant’ as including ‘the Shipper, Holder, Consignee, Receiver of the Goods, any person owning or entitled to the possession of the Goods or of this bill of lading and anyone acting on behalf of such Person’; and ‘Holder’ as ‘any Person for the time being in possession of this bill of lading to or in whom rights of suit and/or liability under this bill of lading have been transferred or vested’. 51 See para 2.46 above. 52 See para 2.48 above. 53 Indeed, delivery orders have been described, perhaps rather strangely, as ‘non-transferable documents of title’ per Kerr LJ in Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV [1975] 1 Lloyd’s Rep 146 at 154; see also Glencore International AG v MSC Mediterranean Shipping Co SA [2017] 2 Lloyd’s Rep 186 at 194 Col.1, para 44. 54 See the orders in Sterns v Vickers [1923] 1 KB 78 at 80; Inglis v Robertson [1898] AC 616 at 620; and Cremer v General Carriers [1973] 2 Lloyd’s Rep 366 at 369. In Waren Import Gesellschaft Krohn & Co v Internationale Graanhandel Thegra NV [1975] 1 Lloyd’s Rep 146, Kerr J even contemplated, at 155, a ship’s delivery order made out ‘to bearer’. See Benjamin, para 18–227. 55 See also Benjamin at para 18–239, where it is argued that the fact that the named on-buyer has a contractual right to delivery of the goods under COGSA  1992 does not mean that a ship’s delivery order has become a document of title in the common law sense.

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ship’s delivery order made out ‘to order’ is endorsed in blank would need to have the document attorned to them by the carrier in their favour for them to have a right to delivery of the goods as against the carrier.

SHIPPING DOCUMENTS THAT ARE NEGOTIABLE Negotiable Documents of Title We saw earlier56 that, although the words ‘transferability’ and ‘negotiability’ are used interchangeably, they cover two quite separate legal concepts in international trade: first, the power to pass the right to demand delivery of goods from a carrier through transfer of a document; and secondly, the ability to acquire a title to the ownership of the goods which is better than that of the transferor. We saw also that reserving the word ‘transferability’ for the first concept and the word ‘negotiability’ for the second helps explain why certain documents are negotiable but not transferable: while only ‘order’ bills of lading are transferable, many other documents are treated by SOGA 1979 ss 24–25 and 47 as negotiable. The following documents are listed in s 1(4) of the Factors Act 1889 as ‘documents of title’:

3.15

‘any bill of lading, dock warrant, warehouse-keeper’s certificate, and warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.’ Two questions arise: first, does the fact that the bill of lading (among other listed documents) gives transferees in specified circumstances a better title to the ownership of the goods than that of their transferor make these documents fully ‘negotiable’; secondly, are sea waybills ‘negotiable’ in the sense in which that word is here used?

(a)  Bills of Lading are Negotiable Bills of lading and the other documents listed as ‘documents of title’ in s 1(4) of the Factors Act 1889 are negotiable in the sense that, where the requirements of SOGA 1979 ss 24 and 25 are satisfied, the title of the holder of the bill prevails over that of the true owner. The bill of lading shares this characteristic with bills of exchange, which are, less than surprisingly, governed by their own statute that establishes its own instances of negotiability.

56 See paras 3.5–3.7 above.

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3.17

How a Seller Transfers Rights to a Buyer

(b)  Sea Waybills are Arguably Negotiable 3.17

Sea waybills declare themselves to be ‘non-negotiable’57, by which they actually mean non-transferable, a description which is generally taken to reflect the commonly held view that sea waybills are not documents whose transfer is capable of passing the right to claim delivery of the goods from the carrier58. The question here is whether sea waybills59 are ‘negotiable’ in the true sense, for the purposes of s 1(4) of the Factors Act 1889 and SOGA 1979 ss 24–25 and 47. Money turns on this question where, for example, a seller of goods covered by a sea waybill sells the goods again to a third party, transferring the document to that third party60, naming them as consignee and altering the carrier’s delivery instructions accordingly. If the sea waybill is negotiable, the second buyer’s title over the goods is indefeasible by the claims of the original consignee; if the sea waybill is not negotiable, then the general principle nemo dat quod non habet would prevent the seller from passing a title to the second consignee which was better than that of the first. For the second buyer to be preferred in this way, they would need to bring the circumstances described above within the terms of SOGA 1979 s 24; and for that section to be triggered into effect, they would need to bring sea waybills within the definition of ‘document of title’ in s 1(4) of the Factors Act 1889, which reads, in relevant part: ‘The expression “document of title” shall include any bill of lading … and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.’ A sea waybill is not a document ‘authorising or purporting to authorise, either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented’: the fact that the buyer need not present the document at the port of discharge61 and the fact that they cannot pass on the right to delivery by transfer of the document62 take the sea waybill outside that part of the section. However, given that the person named as the consignee on the sea waybill has a contractual right to claim delivery of the goods from the carrier63, it is possible 57 See, for example, GENWAYBILL 2016, which calls itself a ‘Non-negotiable General Sea Waybill’. 58 See Goode Commercial Law, pp 933, 934–41; Benjamin, paras 18–025 and 18–033; and Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439 at 446. 59 As opposed to straight bills of lading; there seems to be little doubt that these latter documents would come within the phrase ‘any bill of lading’ within the meaning of the section: the straight bill of lading in C P Henderson & Co v Comptoir d’Escompte de Paris (1873) LR 5 PC 253, being negotiable. It is suggested that this would be the case whether or not the straight bill expressly required presentation for delivery of the goods. 60 Presentation not being necessary, sea waybills need not be transferred to buyers. However, they appear to be physically transferred quite frequently: indeed, UCP for Documentary Credits art 21, ICC 600, envisages their transfer under documentary credits. 61 See paras 2.35–2.38 above. 62 See para 3.9 above. 63 See para 2.35 above and COGSA 1992 ss 1(3), 2(1)(a) and 5(3).

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to characterise the document as one ‘used in the ordinary course of business as proof of the … control of goods’. Consequently, the title of the innocent on-buyer named as consignee on the sea waybill would, in the circumstances described above, be better than that of the seller who had sold the goods twice to different people.

(c)  Other Documents Listed in Section 1(4) of the Factors Act 1889 In the first part of this chapter, we asked whether ‘order’ bills of lading, ‘nonorder’ bills of lading, sea waybills, ‘received for shipment’ bills of lading, combined transport documents and delivery orders were transferable. There is no doubt that most of these documents are ‘documents of title’ for the purposes of s 1(4) of the Factors Act 188964. Thus, delivery orders are expressly referred to in the section. Again, there appears to be no suggestion that just because a combined transport bill of lading states the goods to have been received for shipment rather than that they have been shipped, the document is any less a ‘document of title’ under s 1(4) of the Factors Act 1889 and, therefore, capable of passing to a transferee a better title than that of the transferor where SOGA 1979 s 24 or 25 applies.

64 The section is set out at para 3.15 above.

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Chapter 4

The Point at Which the Buyer Assumes the Risk of Loss and the Circumstances in Which They can Sue the Carrier

THE ‘TRANSFER’ OF ‘RISK’ AND THE TRANSFER OF ‘PROPERTY’ ARE SEPARATE CONCEPTS 4.2 RISK IN SHIPMENT SALES 4.3 (a) Transfer of Risk in Shipment Sales Contrasted With the General Rule in SOGA 1979 4.3 (i) Reasons for Risk Passing ‘on or as From Shipment’ 4.4 (ii) Risk Only Passes if the Seller has Performed Their Other Duties4.7 (iii) Contractual Variations to Risk Passing on Shipment are Construed Restrictively 4.8 (b) Risk in Shipment Sales: Special Rules Under SOGA 1979 4.12 (i) The Shipper can Still be Liable for Delay That They Cause: Section 20(2) of SOGA 1979 4.13 (ii) Shipper and Receiver can be Bailees Under Section 20(3) 4.15 (iii) The Seller has a Duty to Procure a Reasonable Contract of Carriage: Section 32(2) of SOGA 1979 4.17 (iv) The Buyer Must be Given Notice to Insure, Unless the Contract of Carriage is Concluded on CIF or Straight FOB Terms: Section 32(3) of SOGA 1979 4.19 (v) The Risk of Deterioration Under Section 33 of SOGA 1979 Will Likely Never Apply to Contracts on Shipment Terms 4.23 THE SELLER HAS A DUTY TO PROVIDE THE BUYER WITH TITLE TO SUE THE CARRIER, WHICH IS NORMALLY ACHIEVED THROUGH COGSA 1992 4.24 WHERE COGSA 1992 DOES NOT OPERATE, THE BUYER MAY RELY ON AN IMPLIED CONTRACT AND/OR NEGLIGENCE 4.32

Structure of This Chapter In this chapter, we will consider the inter-relationship of four issues: (i)

In the commodities trade, risk of the loss of, or of damage to, the goods while they are in transit generally lies with the buyer.

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4.2 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier (ii) Given that risk of transit loss lies generally with the buyer, the seller normally transfers to the buyer the seller’s contractual rights of suit against the carrier, typically through the operation of COGSA 1992. (iii) There are circumstances in which the buyer might obtain the seller’s rights of suit against the carrier in situations where COGSA  1992 does not operate. (iv) Whether a buyer needs to account for any benefits or discounts obtained under the contract of sale when recovering damages against the carrier.

THE ‘TRANSFER’ OF ‘RISK’ AND THE TRANSFER OF ‘PROPERTY’ ARE SEPARATE CONCEPTS 4.2

It is common to speak of risk ‘passing’ from seller to buyer in the same way that property passes from one to the other1. This may give the impression that risk, like property, is in a real sense a right that is sold by the seller to the buyer. Other rights and powers too, like the right to claim delivery of the goods, the power to transfer that right, and contractual title to sue the carrier, are frequently said to be transferred from seller to buyer. However, this manner of speaking may cause difficulty when it is pointed out that, in CIF and FOB contracts, the seller will typically ‘pass’ the risk to the buyer at the point of shipment before they pass any of those other rights and powers to the buyer. ‘Risk’ is unlike any of these other concepts: it is not a ‘right’ over the goods that can be transferred2 from the seller to the buyer; it is really a disbenefit. To say that risk has ‘passed’ from seller to buyer is, rather, a short-hand way of saying that the seller has performed their physical duty under the contract of sale to deliver the goods to the buyer3 at the contractual delivery point, such that the buyer’s remedies, if any, for loss of or damage to the goods while in transit now lie not against the seller, but against the person/ people (or their representatives) who now have control over the goods; namely, the carrier or the carrier’s insurer. If, on the other hand, risk has not ‘passed’ from seller to buyer, then this again is a short-hand way of saying that the seller has yet to deliver the goods to the buyer, that they are consequently still under a duty to deliver goods as described in the contract, and that they are, therefore, still liable to the buyer under the contract of sale for any loss of or damage to the goods. The object of ascertaining where the risk of goods in transit lies is to establish whether the seller or carrier is the appropriate defendant to a claim brought by the buyer in respect of non-delivery, short-delivery or damage to cargo: if the risk 1

See, for example, the rubric to SOGA  1979 s  20, which reads ‘Risk prima facie passes with property’. 2 See Chapter 2 for the transfer of the right to delivery, Chapter 3 for the power to transfer that right, and Chapter 5 for the transfer of property. 3 See, in similar vein, LJ Sealy ‘Risk in the Law of Sale’ [1972] CLJ 225, particularly at 226–7. The ‘transfer’ of risk tells us not only when but also where the seller performs their duty to deliver the goods: see Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [2008] UKHL 11.

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4.3

rests with the seller, then they are the proper defendant; if the risk has ‘passed’ to the carrier, then the carrier is the proper defendant. In essence, the moment at which risk ‘passes’ is the moment at which the seller performs its contractual duty to deliver the goods: anything that happens to the goods before that moment of delivery is for the seller’s account, and anything that happens to the goods after that moment is for the buyer’s account.

RISK IN SHIPMENT SALES (a)  Transfer of Risk in Shipment Sales Contrasted With the General Rule in SOGA 1979 Risk normally passes to the buyer ‘on or as from shipment’4 under sale contracts concluded on shipment terms5, irrespective of the transfer of property from seller to buyer. Accordingly, a seller who has shipped the goods and who still owns those goods does not run the risk of their loss or damage in transit. This is a derogation from the general position set out in SOGA 1979 s 20(1). That section reads: ‘(1) Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not.’ This derogation for sale contracts on shipment terms, which splits the passing of property and risk for sale contracts, is normally justified because the parties have contracted on FOB or CIF terms, where risk transfers at the point of shipment (although it is possible to contract on different terms, of course). The authority for the proposition that risk in such contracts passes ‘on or as from shipment’ is both clear and settled6. The practical effect of the transfer of risk is equally clear: once risk passes, the buyer’s remedies, if any, for loss or damage to the goods in transit lie no longer against the seller but against the carrier or the cargo insurer.

4

5 6

This general rule is sometimes expressly stated in the contract of sale. See, for example, the FOB contract used by the North American Export Grain Association, Inc., clause 25 of which reads: ‘Anything in this contract to the contrary notwithstanding, seller shall retain title to the commodity until seller has been paid in full (per clause 11), it being understood that risk of loss shall pass to buyer on delivery at discharge end of loading spout (per clause 8)’. See, for example, Stock v Inglis (1884) 12 QBD 564 at 573, affirmed at (1885) 10 App Cas 263; and The Julia [1949] AC 293 at 309. The Julia [1949] AC 293 at 309, and other cases cited by Benjamin at para 19–111, footnote 829 for CIF contracts, and The Parchim [1918] AC 157 at 168–9, and other cases cited by Benjamin at para 20–095, footnote 742 for FOB contracts.

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4.4 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier

(i)  Reasons for Risk Passing ‘on or as From Shipment’ 4.4

The justifications for the reversal in shipment sales of the general rule set out in SOGA  1979 s  20(1) are both commercial and legal. From the seller’s point of view, selling on shipment terms involves two types of danger: (1) a physical danger; and (2) a financial one. The physical risk is that the goods might be lost or damaged at sea before the price is paid by the buyer; and the likely commercial risk is that the buyer might fail to pay the price altogether. Either occurrence becomes less worrying to the seller if it is clear that the seller stops being liable for the safe keeping of the goods when the goods are shipped on board the vessel and if title is reserved to the seller until payment. These commercial considerations are recognised by the law in the essential nature of a sale contract concluded on shipment terms. As we have seen7, in such a contract, the seller performs their contractual obligation by shipping goods of the contract description on the contract vessel and by tendering the contractual documents to the buyer: they owe the buyer no duty to guarantee that the goods will actually reach the contractual destination at all, never mind in the same condition and quantity in which they were shipped on board the vessel. For these commercial and legal reasons, the general rule as to the passage of risk is that the risk in shipment sales passes from the seller to the buyer on or as from shipment of the goods. The Transfer of Risk ‘on Shipment’ can be Retroactive

4.5

The rule that risk in shipment sales passes ‘on or as from shipment’ appears to allow the seller to pass risk in goods that may be lost or damaged before property passes or even before the contract was concluded. Thus, in CIF and C&F contracts, the seller can perform their contractual duty physically to deliver goods by procuring goods which are already at sea and bound for the agreed destination8: if risk passes ‘as from shipment’, then the buyer would bear the risk of loss or damage which precedes the contract under which they bought the goods. Again, where goods sold on shipment terms are lost or damaged after shipment9, but before property in an identifiable parcel thereof passes through ascertainment and appropriation to a particular buyer10, the rule in shipment sales would appear to put the risk of transit loss or damage on the buyer, who would need to look not to the seller but 7 8

See paras 1.7–1.8 above. In FOB contracts, there is generally no need for the ‘or as from shipment’ part of the rule, as the seller does not traditionally sell goods already at sea on FOB terms: see The Golden Rio [1990] 2 Lloyd’s Rep 273 at 276 and Benjamin at paras 20–012 and 20–095. It should be added, though, that such sales do occur in the commodity trades: see, for example, the string of sales in The Captain Gregos [1990] 2 Lloyd’s Rep 395 at 397. Where this is the case, it is submitted that the general rule that risk passes on or as from shipment applies: see The Sanix Ace [1987] 1 Lloyd’s Rep 465, where the initial contract and on-sale contracts all stated risk to have passed on shipment. 9 If the goods are lost or damaged before shipment, the risk is with the seller who is under a duty to ship substitute goods: see Hindley & Co Ltd v East Indian Produce Co Ltd [1973] 2 Lloyd’s Rep 515 at 518; it is, however, open to the parties to agree that risk in the goods passes to the buyer before shipment: see, for example, The Galatea [1979] 2 Lloyd’s Rep 450. 10 See SOGA 1979 ss 16 and 18, rule 5 and, in the absence of appropriation, The Sanix Ace (above).

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4.6

to the carrier for their remedy, for such loss or damage11. In either case, the law needs to be stated somewhat cautiously because the authorities on the transfer of risk before property or contract are unclear12 and writers in the area are divided13. Retroactive Transfer of Risk Justified The view that the seller can sell goods on shipment terms which are lost or damaged before the buyer comes to own them, or even before the buyer has actually bought them, can be supported in terms of both principle and commercial expediency. First, the retroactive passage of risk to the buyer does not mean that they are left without a remedy: it means simply that the seller has performed their duty of physical delivery and that the buyer must now look elsewhere for a remedy if the goods do not arrive at the agreed destination, or if they arrive in a damaged state or in a lesser quantity than shipped. This is the very reason why the parties have agreed on sale terms that envisage the purchase of carriage and insurance contracts14. Had the buyer not wanted to purchase on those terms, they could

11 See Inglis v Stock (1885) 10 App Cas 263. Where the contract is not on shipment terms, both property and risk will normally be with the seller: property because of SOGA 1979 s 18, rule 5, and risk because of s  20(1). Consequently, the seller is in breach of contract if the goods are not delivered to the buyer in good condition. However, the position appears to be different where the sale is of an undifferentiated part of an identified bulk. Where the entire bulk has been destroyed, the seller might be able to plead frustration, performance being frustrated if the whole of the identified bulk has been lost. Where the entire bulk has been damaged, as opposed to lost, the buyer bears the risk of such loss: see Stern Ltd v Vickers Ltd [1923] 1 KB 78. This latter case provides a rare instance, in the context of sale contracts which are not on shipment terms, of risk passing before property: see Atiyah and Adams’ Sale of Goods (14th edn, 2010, Pearson Education Ltd) (hereinafter referred to as ‘Atiyah’), pp 354–356 for a discussion of its exceptional nature in domestic sales; the case is stated to ‘depend on its special facts’ in Benjamin at para 6–005. 12 For the seller’s ability to pass risk retrospectively, see C Groom, Limited v Barber [1915] 1 KB 316, at 322–325; Manbre Saccharine Co v Corn Products Co [1919] 1 KB 198; and Ross T Smyth & Co Ltd v T D Bailey & Son & Co [1940] 3 All ER 60 at 70. Contrast Olympia Oil & Cake Co Ltd v Produce Brokers Co Ltd [1915] 1 KB 233, a decision of the Divisional Court. The contract in this case was not a CIF contract: see McArdie J in Manbre Saccharine [1919] 1 KB 198 at 201; moreover, the net result of the litigation in Olympia was that the seller was in the end held to have been entitled to appropriate goods which they knew to be lost, this on the basis of a custom to that effect: see the ensuing litigation at [1916] 1 AC 315, [1916] 2 KB 296 and [1917] 1 KB 320. 13 In favour of the view stated in the text, see Sassoon, paras 252–53; and J  D  Feltham ‘The Appropriation to a CIF Contract of Goods Lost or Damaged at Sea’ (1975) JBL 273. Against that view, see Goode Commercial Law, pp 942, and Benjamin, at paras 19–082 to 19–083 and 19–114, the latter of which points out the acute difficulties in this area. For a third view, namely that a seller ought to be able to appropriate but not to contract for the sale of lost or damaged goods, see H J Berman and C Kaufman, ‘The Law of International Commercial Transactions’ (Lex Mercatoria) in 19 Harvard International Law Journal (1978) 221 at 242. It is, of course, always open to the parties to make the position clear by contract: see The Intan 6 V 360A SN [2003] 2 Lloyd’s Rep 700, where clause 11 of the contract made it clear that the buyers were to pay whether or not the goods were lost. 14 See Manbre Saccharine Co v Corn Products Co [1919] 1  KB  198 at 204; and J  D  Feltham ‘The Appropriation to a CIF Contract of Goods Lost or Damaged at Sea’ (1975) JBL 273 at 275.

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4.6 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier have purchased on terms which stipulated for a different delivery point like DDP (which would probably be more expensive)15. Secondly, the alternative view, namely that the seller might be in breach of their contract of sale where the goods are lost or damaged in transit, would lead to a circuitous chain of litigation, likely to be extremely difficult to resolve. The effect of this alternative view is that a seller would be liable to their buyer if the seller had passed property in goods that were, at that time, lost or damaged. This might be very difficult to prove. Consider how this would work where loss or damage had occurred in a cargo of a commodity shipped in bulk and traded down a string. Each buyer would have a cause of action against their seller for breach of the seller’s duty to deliver goods of contract specification; each seller would wish to rebut liability by proving that the goods were in perfect condition when they sold down the string. This proof might be difficult to demonstrate in practice16; moreover, the ensuing, and expensive, litigation would be pursued between the parties least likely to have caused the loss or damage, namely the traders who have little (if any) control over what happens to the goods while they are in transit17. On the other hand, if the seller is not in breach and if consequently the buyer does bear, as is here suggested, the risk of loss or damage in the circumstances envisaged, the litigation ensuing from such loss or damage is altogether neater and more appropriately directed against the party most likely to have caused it, namely the carrier18. The result of the early transfer of risk from seller to buyer, and of the consequent discharge of the seller’s responsibility of delivery, would, on this hypothesis, be a cargo claim by the receiver (that is, the person who ultimately suffers the loss) against the carrier (that is, the person most likely to have caused it). 15 Under Incoterms 2020 there are three ‘D’ terms: Delivered at Place Unloaded (‘DPU’), with delivery being effected at the place the goods are unloaded once unloaded; Delivered at Place (‘DAP’), with the goods being delivered at the place the goods are unloaded but before being unloaded; and Delivered Duty Paid (‘DPP’), with delivery being effected (like DAP) at the place where the goods are to be unloaded but before being unloaded. DPP has the added disbenefit to the seller in that it places on them the responsibility of paying all import taxes and clearance duties. 16 The difficulty of proving where goods are lost is one of the arguments put by Mr J D Feltham in favour of the view adopted in the text: see ‘The Appropriation to a CIF Contract of Goods Lost or Damaged at Sea’, at (1975) JBL 273. The same issue is referred to in Benjamin: although the editors of Benjamin take the view that a seller cannot appropriate goods which are lost (see fn 13 above), they place the risk of deterioration, as opposed to loss, prior to appropriation upon the buyer, on the basis that risk passes on or as from shipment, because ‘[i]t will often be impossible to show whether the deterioration occurred before or after appropriation’: see para 19.085; but see Feltham, as above, at p 277. 17 At any rate until the original shipper sued the carrier under the contract of carriage. The circuity of action which would ensue if the seller could not appropriate goods after loss or damage is anticipated by the editors of Benjamin at para 19–084: it is explained away by the observation that each seller up the string can escape liability by inserting a clause in their contract to the effect that the buyer must accept the original appropriation made by the shipper. 18 At any rate, if the buyer has title to sue the carrier either by bringing themselves within COGSA 1992 or by claiming such title to sue through an implied contract, tort or bailment: see generally Chapter 5.

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Thirdly, this rule does not mean that a seller can sell goods knowing they are lost or damaged but representing them as extant and in good condition, as that is likely to involve a fraudulent misrepresentation19.

(ii)  Risk Only Passes if the Seller has Performed Their Other Duties The rule that risk passes on or as from shipment does not, however, give carte blanche to the seller to ship any goods in any condition. Risk in shipment sales will only pass on or as from shipment if the seller has actually performed their physical duty: (a) To ship goods or to procure goods shipped which conform with the specifications set out in the contract and which comply with the seller’s duties implied by SOGA 1979 regarding satisfactory quality and conformity with description and sample, unless these duties are effectively excluded through the use of so-called ‘certificate final’ clauses. (b)

The goods must, at the time of loading, be able to retain their satisfactory quality from the time of shipment until arrival at the destination and for a reasonable time for disposal (this can apply even where the product meets the contractual specification on delivery at the port of shipment but nevertheless suffers from a latent defect so that it degrades in transit)20. For instance, there may well be certain types of damage or deterioration occurring after shipment that are at the risk of the seller, regardless of shipment. Thus, in Mash & Murrell Ltd v Joseph I Emmanuel Ltd21, the buyers claimed damages against the sellers in respect of a cargo of potatoes which reached the buyers in a rotten state. The result of the reasoning in the case is that, when we say that a seller on shipment terms must ship goods, procure shipped goods, or, in FOB sales, load goods on a nominated vessel in a ‘merchantable’ state22, we mean that the goods must be of satisfactory quality at the time of shipment and be able to withstand the rigours of an ordinary journey23. Thus, if the buyer can prove that, at the time of shipment, the goods were not likely so to remain for the duration of a normal voyage, then the buyer has a right of action against the seller under

19 20 21 22

See paras 6.8 and 9.30 below. The Mercini Lady (No 2) [2012] EWHC 3009 (Comm). [1961] 1 All ER 485, per Diplock J, reversed on the facts at [1962] 1 All ER 77. A duty imposed on every seller of goods by SOGA 1893 s 14(2), now supplanted by the duty to deliver goods ‘of satisfactory quality’ by SOGA 1979 s 14(2). The plaintiffs put their case in three different ways: a breach of the warranty imposed by section 14(1) of the 1893 Act that goods would be fit for the purpose for which the goods are required; a breach of the warranty of merchantability imposed by section 14(2) of the Act; and breach of a common law warranty in identical terms. Diplock J saw no great distinction between these three different avenues towards the same destination: see [1961] 1 All ER 485 at 489D. 23 See [1961] 1 All ER 485, at 490I.

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4.8 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier the contract of sale24. In Mash & Murrell25 itself, the Court of Appeal held that the voyage actually pursued by the carrier was not a normal voyage and that consequently the sellers were not in breach of the warranty of merchantability as drawn by Diplock J. Thus, the buyer’s remedy, if any, lay against the carrier rather than against the seller26. (c)

Finally, to say that risk passes to the buyer on shipment does not mean that the seller is discharged from any liability towards the buyer under the contract of sale: thus, if, for example, the seller tenders a bill of lading made out for a destination other than that stipulated for in the contract of sale, the seller would be in breach of contract, regardless of the fact that they had performed their physical obligation to deliver goods of contract specification.

(iii)  Contractual Variations to Risk Passing on Shipment are Construed Restrictively 4.8

Aware that risk in transit loss or damage in goods sold on shipment terms lies with them, buyers with commercial leverage will attempt to leave certain types of post-shipment risk with the seller through contractual terms altering the seller’s duty of delivery. Two such clauses are in common use: (1) terms determining the buyer’s duty to pay the price by reference to the discharge of the goods at the port of destination according to their landed quantity; or (2) by a certain date. Insofar as these clauses seek to leave certain types of risk after shipment with the seller, they deviate from the natural economy of contracts of sale on shipment terms27. In these circumstances, it is not surprising that these clauses have been construed restrictively against the buyer’s interests. We evaluate these clauses now.

24 Of course, if the buyer finds this difficult to prove, and if the master had signed a clean bill of lading stating the goods to have been shipped in apparent good order and condition, the buyer would have a claim against the carrier under the contract of carriage, supported by the incontrovertible representation that the goods had been shipped in apparent good order and condition: see COGSA 1971 Sch art III.4 and, where the Act does not apply, Compania Naviera Vascongada v Churchill [1906] 1 KB 237. 25 [1962] 1 All ER 77. 26 Of course, had the sellers actually contracted for a voyage which was not usual, that would have put them in breach of their quite separate obligation to conclude a contract of carriage on ‘usual’ terms: see para 7.10 below. 27 Thus, in Law & Bonar Ltd v British American Tobacco Co Ltd, Rowlatt J said that a clause stating that the goods were at seller’s risk until actual delivery at the port of discharge was repugnant to a CIF contract: [1916] 2 KB 605 at 608. Whether a clause postponing payment, wholly or partly, to the discharge of the goods can properly be seen as a CIF contract is less clear: see Houlder Bros & Co Ltd v Commissioners of Public Works [1908] AC 276 at 290, The Julia [1949] AC 293 at 312; and The Gabbiano [1940] P 166, at 174– for the view that such clauses are repugnant to a CIF contract; and, for the view that they are not, Arnhold Karberg & Co v Blythe Green Jourdain & Co [1915] 2 KB 370, at 379, affirmed at [1916] 1 KB 495, and other cases cited at Benjamin, para 19–006.

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Contracts Based on Out-Turn Quantity or Landed Weight may Have an Impact on Risk A contract agreed on out-turn quantity or landed weight terms will allow for an adjustment to the agreed contract price by reference to the quantity of goods actually discharged28. The purpose of the clause is to leave some form of transit loss at the risk of the seller, but precisely which type of risk is left with the seller? While the buyer can take advantage of the price adjustment where the goods are discharged in a lesser quantity than agreed, must the buyer pay the contract price where no goods are discharged, or where the goods are discharged in a damaged condition? The contract may itself make the position clear. Thus, for example, the CIFFO contract of the Sugar Association of London caters for non-arrival through the following clause29: ‘In case of total loss of a consignment where the contract provides for settlement on landed weight and outturn particularisations, the Buyer shall be invoiced at the contract price for the full shipped weight of that consignment plus five percent.’ Where the contract fails to provide for the non-arrival of the goods, it is clear that the buyer is under a duty to pay the contract price without adjustment: the clause leaves the risk of short-delivery with the sellers, but not that of non-delivery30. Consequently, the buyer’s rights of recovery, if any, lie not against the seller under the contract of sale, but against the carrier or insurer under the contracts of carriage or insurance. Likewise, it would seem to follow that where goods are delivered in a damaged condition, there is, in the absence of an express clause, no right to adjustment of the price where the contract restricts such right to a discrepancy between the contract quantity and the quantity discharged.

28 Some contracts also allow the buyer an adjustment if the goods are discharged in a damaged condition: see the so-called Rye Terms clause in GAFTA 100, clause 16. See generally J J Lightburn & G  M  Nienaber ‘Out-Turn Clauses in CIF  Contracts in the Oil Trade’ (1987)  LMCLQ  177, 183–185; ‘Practising CIF and FOB  Today’, H  J  Berman and C. Kaufman, J  Lebuhn (1981) 1 European Transport Law, 24 at 24–28; and ‘The Law of International Commercial Transactions’ (Lex Mercatoria) in 19 Harvard International Law Journal, (1979) 221 at 235–237. 29 Rule 118 of the Rules to Regulate Cane and Beet Raw Sugar Contracts CIF free out and cost and freight free out. Alternatively, the contract may expressly provide that the contract will be void where the ship is lost before arrival: see Karinjee Jivangee & Co v William F Malcolm & Co (1926) 25 LlL Rep 28. Given that such a clause deviates so far from the norm in shipment contracts, the court stopped short of reading into such a clause an intention that the contract be rescinded on the loss of the ship: it was held simply that, after the ship’s loss, the seller would no longer be bound or entitled to tender documents for goods of the contract description. Thus, the buyer was not bound to pay the seller any moneys that the buyer had recovered under their insurance policy. 30 Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s Rep 398 at 405.

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4.10 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier Shipment Contracts Stipulating an Arrival Date may Have an Impact on Risk 4.10

Rather than simply stipulating the date of shipment, contracts will on occasion state the date by which the goods must arrive at the contract destination31. Again here, the purpose is clear: through such a clause, the buyer seeks to make the obligation of payment conditional upon the arrival of the goods by the stated date, thus leaving the risk of delay with the seller. However, is the effect of the clause to impose upon the seller a guarantee of the arrival of the goods, thus changing a contract expressed to be on shipment terms into one on arrival or destination terms? Moreover, even if late arrival were to discharge the buyer’s duty to pay the price, would it follow that the duty to pay is also discharged where the goods fail to arrive at all, or where they arrive in a quantity lesser than that agreed, or where they arrive in a damaged quantity? It would appear that the answer to all these questions is that the buyer must pay the contract price, that duty being discharged only if the seller could not have expected the vessel to arrive by the stipulated date. In The Wise32, a clause guaranteeing arrival by a certain date was construed restrictively simply to mean that the vessel was expected to reach her destination by the stipulated date, rather than that the seller guaranteed such arrival by that date. The Seller can Retain Rights Against the Carrier by Requiring the Buyer to Re-endorse the Bill of Lading Back to the Seller

4.11

Where, in contracts containing one of the above two types of clause, the buyer’s duty to pay is discharged in full or in part, either because a lesser quantity of good is discharged than sold, or because the named vessel could not have been expected to reach the destination by the agreed time, the seller may wish to recover their loss against the carrier. A shipper in this position faces serious difficulties at the very basic level of establishing their contractual title to sue the carrier. Under COGSA  1992, once the bill of lading has been transferred to the buyer, the 31 See, for an example, Cargill International SA v Bangladesh Sugar and Food Industries Corp [1998] 2 All ER 406 at 409; see also Contigroup Companies Ltd v Glencore AG [2005] 1 Lloyd’s Rep 241. 32 [1989] 1 Lloyd’s Rep 96 at 100–01. The case was remitted by the Court of Appeal to the Commercial Court on grounds irrelevant to the present point: [1989] 2 Lloyd’s Rep 451. See also Tregelles v Sewell (1862) 2 H & N 574, affirmed at (1863) 7 H & N 584, where a clause ‘delivered at Harburgh [the discharge port], cost, freight and insurance’, was construed as simply describing the destination of the goods rather than defining the point at which risk passed; and The Ballenita [1992] 2 Lloyd’s Rep 455 at 464: ‘[c]lear words would be required before a provision such as ‘Delivery … CIF basis Genoa … during October 11–25, 1990’ should be construed in a cif contract as imposing on the sellers an obligation to procure delivery of the goods at the port of destination by the stipulated date’. In CEP Interagra SA v Select Energy Trading GmbH (The Jambur), 14 November 1990 (not fully reported but at LMLN 289), Phillips J found the words ‘Delivery: Latest by 30 April 1990, CIF basis one safe berth/port Kaohsiung, Taiwan, as full cargi per mt Jambur, which sailed from Constanza 1000 am 28 March 1990’ to be clear enough to impose on the sellers an obligation to ensure delivery at destination. The case has not been followed and was not cited in The Ballenita [1992] 2 Lloyd’s Rep 455: see Jeremy Davies ‘Point of ‘delivery’ in CIF contracts’ Shipping & Trade Law 1 January 2003.

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shipper’s right of action on the bill of lading is extinguished33 and they, therefore, have no title to sue the carrier in contract in their own name34. In order to avoid this exposure to losses unrecoverable under the contract of carriage, a seller contracting on ‘outturn’ or ‘arrived date’ terms would be well-advised to include a clause in the sale contract obliging the buyer to re-endorse the bill of lading to the seller35.

(b)  Risk in Shipment Sales: Special Rules Under SOGA 1979 Transfer of Risk and SOGA 1979 The default position under SOGA 1979 s 20(1) is that risk passes with property. This is hardly ever likely to be relevant to contracts concluded on shipment terms. This does not mean, however, that the Act has nothing to tell us about the transfer of risk in international trade. The Act contains five sections which, in the context of domestic sales, provide exceptions to the rule in section 20(1) that risk passes with property: most of these sections put the risk of such loss upon the party whose fault it was that the loss was caused. As the Act does not in terms limit the application of these sections to domestic sales, the question arises as to whether any of them might apply to sale contracts concluded on shipment terms. We shall see presently that that question raises difficult issues of interpretation. By and large, though, little turns on the resolution of such issues, either because the relevant sections of the Act simply reflect the position established by the common law36; or because the section does not apply to any37 or to many38 contracts concluded on shipment terms; or, finally, because the section clearly and sensibly applies to such contracts39.

33 See COGSA 1992 s 2(5). If, however, the shipper is also a charterer, or if the goods are covered not by a bill of lading but by a sea waybill or by a ship’s delivery order, the shipper’s contractual rights against the carrier are not extinguished. 34 A  seller in this position might seek to persuade the buyer to sue the carrier on the contract of carriage for the benefit of the seller: the buyer is ‘entitled’ but not bound so to do: see COGSA 1992 s 2(4). 35 It is submitted that re-indorsement to the seller in these circumstances, ex hypothesi after discharge and hence when the bill of lading ‘no longer gives a right (as against the carrier) to possession of the goods to which the bill relates’ (for the purposes of COGSA 1992 s 2(2)(a)) would be effected ‘in pursuance of [a] contractual or other arrangement[s]’ for the purposes of the same section – and would consequently reconstitute the seller’s title to sue the carrier. 36 Thus, sections 20(2) and 32(2). 37 Thus, section 33. 38 Thus, section 32(3). 39 Thus, section 20(3).

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4.13 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier

(i)  The Shipper can Still be Liable for Delay That They Cause: Section 20(2) of SOGA 1979 Late Shipment and Section 20(2) 4.13

The first of these particular rules is contained in section 20 of SOGA 1979 itself, subsection (2) of which reads as follows: ‘(2) But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.’ It is clear that, if a seller on CIF or FOB terms fails to ship the goods within the contract period, then they are in breach of contract40 and the goods are clearly at their risk, in the sense that they are liable for any deterioration resulting from the delay. This would be the case quite independently of section 20(2) of the Act: for that consequence flows directly from the essential nature of such contracts as shipment rather than arrival contracts; and from the general rule referred to above that the risk of loss or damage in transit passes on shipment of the goods41. Late Discharge and Section 20(2) of SOGA 1979

4.14

Similarly, if the seller ships the goods within the contract period, but delays their discharge (for example, by delaying the transfer of a bill of lading), the commercial (and arguably better) view is that the risk of such loss lies on the seller, and that consequently the buyer can sue the seller for recovery of such loss. In The Rio Sun42, where the seller postponed discharge by delaying the tender of the bill of lading to the buyer, the seller was liable to the buyer for loss caused by the delay, despite the fact that this had the effect of putting the risk of post-shipment loss upon the seller (which ought prima facie to have been transferred to the buyer). Bingham J based his decision on this point squarely upon the duty of the seller to tender a bill of lading: the seller’s conduct in this regard ‘was as clear a breach of contract by a CIF seller as one could well imagine’43. This, therefore, made it unnecessary for the judge to decide whether or not section 20(2) of the Act could apply to sale contracts on shipment terms, although this breach would certainly 40 See Bowes v Shand (1877) 2 App Cas 455: time of shipment of the essence, as to which see para 9.5 below. The rule can be reversed by contract: see The Luxmar [2007] 2 Lloyd’s Rep 542. 41 Where the contract is on FOB terms, if the seller’s failure to ship within the contract period is attributable to a breach by the buyer of their contractual obligation to nominate a vessel, then the buyer is in breach and they cannot sue the seller for any ensuing loss. The goods are, in that sense, at the buyer’s risk even though they have not yet been shipped. Again, though, it is probably true to say that this result flows from the essential nature of an FOB contract rather than from an application of SOGA 1979 s 20(2): it is interesting that the main authority for the FOB buyer’s obligation to nominate a vessel makes no mention of that subsection: see J J Cunningham Ltd v Robert A Munro & Co (1922) 28 Com Cas 42, particularly at 46, where the proposition stated in this note is explicitly explained in terms of risk passing to the buyer before shipment, with no mention being made of SOGA 1893 s 20(2). 42 [1985] 1 Lloyd’s Rep 350 at 361–2. 43 Ibid at 362.

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fall within its remit. Indeed, the judge went on to decide that he could: ‘see no reason why the sub-section should not have the effect of putting upon [the seller] the risk of any loss which might not have occurred but for the delay which he caused’44. This alternative justification involves the assumption that a CIF or FOB seller assumes some form of obligation(s) beyond shipment and until delivery at the port of discharge. This sounds at first sight counter-intuitive for a shipment sale, but is, in fact, hardly novel. Thus, for example, a CIF seller must procure a contract of carriage on reasonable terms covered by a bill of lading made out for the contract destination45, which must be transferred to the buyer. In this example, the CIF seller’s obligations survive the shipment of the goods because they are required to transfer to the buyer the bills of lading containing the contract of carriage. Likewise here, on the facts here envisaged, the risk of post-shipment loss caused by delay attributable to the seller lies with the seller because the seller is in breach of their contractual obligations, and/or because section 20(2) imposes upon the seller duties which derogate from the normal transfer of risk at the point of shipment of the goods46.

(ii)  Shipper and Receiver can be Bailees Under Section 20(3) Bailment and Section 20(3) Bailment exists when goods are physically in the possession of someone who does not have property in them (ie who does not own them in law): the possessor, known as the bailee, owes the person who gave them possession, the bailor, a duty of care as to the custody of the goods while the bailment lasts, and the bailee must return the goods in the condition in which they took them (absent express contractual derogations from this general principle)47. Section 20(3) leaves this duty unaffected by the passage of risk under the contract of sale: ‘Nothing in this section affects the duties or liabilities of either seller or buyer as a bailee or custodier of the goods of the other party.’ The subsection has not attracted much litigation in the area of sale contracts concluded on shipment terms, doubtless because problems as to the care and custody of the goods in such contracts normally arise when the goods are in the physical possession not of the seller or buyer but of the carrier: lack of due 44 Ibid. 45 See generally Chapter 6 below. 46 Likewise, if the buyer delays in exercising an option to nominate a discharge port and loss ensues from such delay, the buyer is in breach of an implied contractual duty to do so within a reasonable time: see The Rio Sun [1985] 1 Lloyd’s Rep 350 at 358–9. This would put any loss caused by such delay at the buyer’s risk, even if it actually occurred prior to shipment, either because the buyer was in breach of such duty or, pace Bingham J, because of section 20(2) of the Act: see ibid. Here again, though, it is submitted that recourse to the Act is difficult, because it involves the assumption that the seller ‘delivers’ at the port of discharge, and unnecessary, because the result would be the same once the buyer is in breach. 47 See, generally, Crossley Vaines on Personal Property (5th edn, 1973, Butterworth & Co) (hereinafter referred to as ‘Crossley Vaines’), Chapter 6.

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4.16 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier diligence in the care of the cargo is, therefore, more commonly dealt with under the contract of carriage than under the contract of sale. Section 20(3) and Shipment Sales 4.16

It is possible, however, to envisage situations where the seller is the bailee for the buyer and vice-versa, and where, therefore, section 20(3) comes into play. Thus, where, for example, property in specific goods sold on CIF terms passed before shipment, the seller was held to owe the buyer a bailee’s duty of care while the thing sold was in the seller’s possession: Wiehe v Dennis Bros48. This situation is, however, very atypical of contracts concluded on shipment terms, where property (although not risk) normally passes much later than, rather than before, shipment49. An altogether more likely set of circumstances triggering section 20(3) into action in this context arises where the buyer terminates the contract by rejecting the seller’s goods against the seller for breach of a condition in the contract50. If property and risk had passed to the buyer before rejection, then it is clear that property51, and probably risk52, revert to the seller on the rejection of the goods. However, it is quite possible for the buyer who has so terminated the contract against the seller to find themselves still in physical possession of the goods: in the nature of things, the suggestion that the goods should be shipped again at the port of discharge because of a dispute between the buyer and the seller is hardly likely to commend itself to the carrier, at any rate where they have already been paid their freight. In this situation, the buyer in possession of the rejected goods is a bailee for the seller and, according to section 20(3), they owe the seller a duty of care in that capacity, despite the fact that property and risk have reverted to the seller.

(iii)  The Seller has a Duty to Procure a Reasonable Contract of Carriage: Section 32(2) of SOGA 1979 The Effect of Section 32(2) 4.17

‘Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in the course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.’53 48 (1913) 29 TLR 250. 49 See Chapter 5 below. 50 See, generally, Chapter 9 below. 51 [1954] 2 QB 487 at 473. 52 See LS Sealy ‘Risk in the Law of Sale’ in [1972] CLJ 225 at 243. 53 SOGA 1979 s 32(2). Emphasis added.

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Risk in Shipment Sales

4.18

The effect of the section is that where the seller fails in their duty to make a contract of carriage on reasonable terms, the buyer has options: (1) First, the buyer may treat delivery54 as not having taken place. In such circumstances, whether or not such loss or damage was caused by the seller’s breach of their duty to make a reasonable contract of carriage, the risk of loss or damage in transit remains with the seller55. (2) Alternatively, the buyer may sue the seller for damages, presumably representing, on general principle, losses which the buyer can prove to have resulted from the seller’s breach of their duty to make a reasonable contract of carriage. Which of these two options is the more useful in any particular case will depend on various factors, such as whether the buyer wishes to accept or reject the goods or whether they can prove that the transit loss was caused by the seller’s breach of their duty to make a reasonable contract of carriage. Section 32(2) of SOGA 1979 Applies to Shipment Sales Section 32(2) would appear to be particularly (although not exclusively) suited to contracts concluded on shipment terms, where sellers typically contract for the carriage of the goods sold to the buyer’s chosen port. The words ‘make such contract [of carriage] with the carrier on behalf of the buyer’, could however, cause some technical difficulty. If interpreted strictly as meaning ‘as agent for the buyer’, these words would exclude from the application of the section contracts concluded on CIF, C&F, FOB with additional services or straight FOB terms56 because they are not strictly contracts of carriage procured on behalf of the buyer: in the first three of these types of contract, the seller concludes the contract of carriage in their own name and then transfers it to the buyer; in the last type of contract, the seller concludes no contract of carriage at all: in none of these types of contract does the seller contract with the carrier as agent for the buyer. Consequently, on this reading, section 32(2) would appear to be applicable only to FOB contracts of the classic variety, that is to say where the seller does contract with the carrier on the buyer’s behalf. If this were the case, a CIF buyer of, say, animal carcasses requiring refrigeration would have no cause of action against the seller for loss caused by the fact the contract of carriage concluded by the seller imposed no duty on the carrier to provide refrigerated storage on board ship. 54 Taken, for this purpose, to be the handing over of the goods to the carrier; see s 32(1), which reads: ‘Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer’. 55 See Benjamin, para 8–296. 56 See Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, at 424; and, generally, paras 1.17– 1.22 above.

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4.18

4.19 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier Fortunately for buyers in this position, this rather technical distinction about the wording of section 32(2) seems never to have been pursued in litigation. Indeed, such dicta as we have appear to have assumed that the section applies to contracts on shipment terms universally, irrespective of whether they are FOB, CIF, C&F or straight FOB contracts57. This, presumably, is because litigants have felt that, even if section 32(2) of the Act were inapplicable, the courts would simply arrive at the same result by implying a similar term of their own making and impose upon the seller an obligation to conclude a contract of carriage on reasonable terms58. Consequently, we suggest that section 32(2) of the Act applies to contracts on shipment terms59 or that, if it does not, this makes no difference in practice.

(iv)  The Buyer Must be Given Notice to Insure, Unless the Contract of Carriage is Concluded on CIF or Straight FOB Terms: Section 32(3) of SOGA 1979 4.19

‘Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such transit.’60 The effect of section 32(3) is to put upon the seller the risk of post-shipment loss where the seller has failed to give the buyer sufficient information to insure the goods while they are in transit. Section 32(3) and CIF Contracts

4.20

Although, again, the section appears to be particularly well suited to all contracts involving sea transit, on closer inspection it is clear that the section is inappropriate to most contracts concluded on shipment terms. Thus, where the seller is under an obligation to effect insurance cover, the section is evidently inapplicable: the buyer needs no information from the seller in order to effect insurance, quite simply because the buyer effects no insurance. Thus, the section is inapplicable to contracts concluded on CIF terms61; and to contracts concluded on FOB terms with the additional duty on the seller of effecting insurance. 57 Houlder Bros & Co Ltd v Commissioner of Public Works [1908] AC 276 at 290; Tsakiroglou & Co v Noblee Thorl GmbH [1961] 2 All ER 179 at 183H, 191D and 194I; and The Rio Sun [1985] 1 Lloyd’s Rep 350 at 359–60. 58 See Ranson v Manufacture d’Engrais (1922) 13 Lloyd’s Rep 205 and Finska Cellulosaforeningen v Westfield Paper Company Ltd (1941) 46 Com Cas 87, discussed further at paras 7.8–7.10 below. 59 Thus, see Atiyah, at p 378. 60 SOGA 1979 s 32(3). 61 Law & Bonar Ltd v British American Tobacco Co [1916] 2 KB 605. In this case, Rowlatt J held that a CIF seller was not liable under the section where the buyer found themselves with no insurance cover for war risks: such cover was not ‘usual’ at the time the contract was made, and the section, therefore, imposed no duty on the seller to pass information to the buyer which would enable them to effect such cover. The judge was careful, however, to leave room for the application of

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Risk in Shipment Sales

4.22

Section 32(3) and FOB Contracts For contracts concluded on straight FOB terms, the buyer is bound to conclude the contract of carriage. Although the buyer is under no obligation to do so, they may also take insurance cover if they wish to: consequently, the buyer is likely to have at their disposal all the information they require to effect the insurance cover appropriate to the sea transit contracted for under the contract of carriage. Consequently, section 32(3) does not sit comfortably with sale contracts concluded on straight FOB terms because the ‘notice’ requirement may appear otiose. Here, it seems, however, that where in these circumstances the seller does have information which the buyer needs in order to effect appropriate cover, then section 32(3) imposes upon the seller the duty to pass such information to the buyer: thus, in Wimble, Sons & Co v Rosenberg & Co62, the Court of Appeal held, by a majority, that the section could apply in such circumstances63. In the result, though, it was held, again by a majority, that the seller was not in breach because the buyer did have all the facts necessary for effecting the appropriate insurance cover. Although the contract in the case was on straight FOB terms, it left the choice of vessel to the seller, who failed to give the name of the vessel to the buyer before the cargo was lost at sea: it was held by the majority64 in the Court of Appeal that the buyer could have effected insurance cover without this item of information and that the seller was, therefore, not in breach. If the seller in Wimble, Sons & Co v Rosenberg & Co65 was not in breach of section 32(3), the upshot of the case, it is suggested66, is that the section will hardly ever be relevant to straight FOB contracts.

4.21

Where Section 32(3) Does Apply In (1)  C&F  contracts, (2)  FOB contracts of the classic variety, and (3)  FOB contracts with the additional duty imposed on the seller to effect the contract of carriage but not insurance, these three types of contract impose the duty of

62 63

64 65 66

the section ‘to a contract CIF made at a time when insurances other than those to be provided by the seller e.g. against war risks – are usual’: see p 609. This dictum may have been uttered out of an excess of caution, for surely, in such circumstances, the seller would be caught by their common law duty to effect ‘usual’ insurance cover, rather than by any duty of notification under s 32(3) of the Act. It is just conceivable, though, that a contract concluded in such circumstances might expressly leave it to the buyer to effect such ‘usual’ war risk cover and in this, somewhat remote, possibility, s 32(3), or perhaps some implied term to the same effect, might impose upon the seller a duty of notification: see Benjamin, para 19–046. [1913] 3 KB 743. The majority on this point was composed of Buckley and Vaughan Williams LJJ, both of whom rejected an ingenious, if technical, point which urged Vaughan Williams LJ to dissent on the law. The argument was that if, pace s 32(1), the FOB seller delivered the goods to the buyer by delivering them to the carrier, then the goods could not, for the purposes of s 32(3), be said to be ‘sent by the seller to the buyer by a route involving sea transit’: see [1913] 3 KB 743 at 756–7, for the minority view, and 749–750 and 752 for the majority view. The majority here was composed differently: Hamilton LJ and Buckley LJ, with Vaughan Williams LJ dissenting. [1913] 3 KB 743, followed in Northern Steel & Hardware Co Ltd v John Batt & Co (London) Ltd (1917) 33 TLR 516. See, in a similar vein, Atiyah, p 375.

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4.22

4.23 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier concluding the contract of carriage on the seller, leaving insurance arrangements to be made by the buyer. Accordingly, it would appear that section 32(3) applies to these three types of contract67. In each of them, the seller is quite likely to have information about the carriage contract which the buyer will need to make arrangements for insurance cover68. The seller must pass such information to the buyer, failing which the goods are at the risk of the seller despite the fact that the goods may have been lost or damaged after shipment.

(v)  The Risk of Deterioration Under Section 33 of SOGA 1979 Will Likely Never Apply to Contracts on Shipment Terms 4.23

‘Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer must nevertheless (unless otherwise agreed) take any risk of deterioration in the goods necessarily incident to the course of transit.’69 Almost all sales on shipment terms are on FOB, CIF or C&F terms, and provide that delivery is not the place where the goods are sold. In these instances, there is an express provision for the transfer of risk at a specific point. Therefore, the risk passes at a place ‘otherwise agreed’ and SOGA  1979 s  33 does not apply. Accordingly, the section is clearly inapplicable to contracts concluded on shipment terms, where it is hardly likely that the seller will agree that the goods will travel at their risk. Whether buying CIF or FOB, the buyer expects to run the risk of transit and this, not because of SOGA 1979 s 33, but quite simply because that is what they buy. The seller performs their obligations under the contract so long as, in CIF contracts, they ship goods, or procure goods shipped, for the agreed destination, which goods are covered by the shipping documents stipulated for in the contract70; and so long as, in FOB, they load the goods on the nominated vessel at the port of loading, together with any additional obligations they may have assumed in the contract. If the seller has performed these duties, the buyer must look to the carrier for their remedy if the goods arrive at the discharge port the worse for wear. Consequently, the premise that triggers section 33 into operation is inapplicable here.

67 A view supported by Benjamin at paras 21–012 and 21–013. 68 There appears to be some doubt as to whether the section can apply at all where the transit involves carriage by some means other than ‘sea transit’, ie where the carriage is multimodal: see Benjamin at para 21–101, where the clearly desirable conclusion is put forward that the section can and should be judicially extended to cover this sort of case. 69 SOGA 1979 s 33. 70 Shipton, Anderson & Co v John Weston & Co (1922) 10 Ll LR 762 at 763.

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The Seller Has a Duty to Provide the Buyer With Title to Sue the Carrier

4.25

THE SELLER HAS A DUTY TO PROVIDE THE BUYER WITH TITLE TO SUE THE CARRIER, WHICH IS NORMALLY ACHIEVED THROUGH COGSA 1992 Risk and the Buyer’s Title to Sue the Carrier A seller of goods on shipment terms must tender to the buyer a document which transfers the rights of suit to their buyer (in the absence of express contrary terms in the sale contract): only then does it make sense for the buyer to pay on terms which transfer to them the risk of loss to goods they may not yet own, or indeed the risk of loss to goods they may not yet have bought. This makes sense as, irrespective of the passage of property, the rule that the risk of transit loss passes to the buyer on or as from shipment is justifiable partly because the rule does not so much leave the buyer without a remedy as direct the buyer to pursue any remedy it has against the carrier71. This justification is only convincing for a buyer aggrieved by the arrival of damaged goods if the seller has provided the buyer with a remedy against the carrier, that is to say with a transport document which gives the buyer a clear contractual action against the carrier.

4.24

A  buyer who can bring themselves within COGSA  1992 s  2 obtains from the seller ‘all rights of suit under the contract of carriage as if they had been a party to that contract’72. Buyers who can bring themselves within section 2 of the 1992 Act include: holders of transferable bills of lading, parties named as consignees in sea waybills or straight (ie non-transferable) bills of lading, and parties to whom the carrier has attorned in ship’s delivery orders73. These individuals therefore obtain the rights of suit needed to sue a carrier. However, the seller’s duties are slightly different regarding each of the above documents of title.

Sea Waybills, Straight Bills of Lading and Ship’s Delivery Orders Where goods are shipped on board vessels whose master issues sea waybills, straight bills of lading or ship’s delivery orders, the seller is under a duty towards their buyer to procure a document which names the buyer as consignee in the first two types of document, and as the person entitled to delivery in the third. This follows from the proposition that only such named persons are entitled to the rights of suit under the contract of carriage initially concluded by the seller with the carrier74. So long as the buyer is named on the document as the person entitled to delivery, the seller has performed their duty to procure a contract of carriage for the benefit of the buyer. As none of these documents have traditionally been

71 72 73 74

See para 4.6 above. See para 2.9 above. See para 2.9 above. See paras 2.35, 2.41 and 2.48 above.

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4.25

4.26 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier regarded as transferable documents75, the question as to whether and, if so, how the seller must endorse the document to the buyer does not arise.

Transferable Bills of Lading 4.26

Where the goods are shipped against an order bill of lading, a document which is by definition transferable76, the question of endorsement raises two questions77: who must endorse the bill of lading, and how? We shall deal with each of these questions in the following paragraphs.

Does an Order Bill of Lading Require the Endorsement of the Shipper? 4.27

For a buyer to obtain from their seller the rights of suit contained in the bill of lading tendered to them by the seller, must the shipper have endorsed the bill of lading? Money turns on this issue because, if the shipper must have endorsed the bill of lading, then two consequences would ensue: first, the shipper’s buyer could reject an unendorsed bill of lading; and, secondly, that buyer’s on-buyer could reject a bill of lading endorsed by the buyer but not by the shipper. Buyers and on-buyers might be inclined to search for rights to reject where the market in the goods sold turns against them. The question arises in two separate situations: first, where the bill of lading is made out to the order of a named consignee; and, secondly, where the bill of lading is made out to shipper’s order.

No Endorsement is Needed to Transfer the Rights of Suit to the Consignee Under a Bill of Lading Made Out to the Order of the Named Consignee 4.28

For a buyer/consignee to obtain rights of suit from the seller in a bill of lading made out to the order of the consignee, does the party named as consignee (the buyer from the shipper) need to ensure that the bill of lading had been endorsed to them by the shipper? The position here is clear: no initial endorsement by the shipper is required to kick-start the bill of lading into life. The reason for this is that, where a carrier has issued to the shipper a bill of lading made out to the order of a named consignee, that carrier has already agreed with the shipper the person to whom the carrier should deliver the goods. When the carrier arrives at the port of discharge, there is no need for the named consignee to establish their credentials to the carrier by showing that the shipper had endorsed the bill of lading: the intention that the goods be delivered to the named consignee arises from the 75 See paras 3.8 and 3.14. 76 See para 3.3 above. 77 No problems as to endorsement arise where the bill of lading is made out ‘to bearer’, ie where the name appearing in the consignee box is given simply as ‘Bearer’. Section 5(2)(b) of COGSA 1992 makes it clear that the buyer would have rights of suit under the bill after any transfer of the bill, with or without endorsement.

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The Seller Has a Duty to Provide the Buyer With Title to Sue the Carrier

4.29

naming of the consignee on the face of the bill of lading and no endorsement is therefore necessary78. Indeed, COGSA  1992 s  5(2)(a) includes, within the definition of a ‘lawful holder of a bill of lading’, ‘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’. There is here no mention of endorsement, solely of ‘possession of the bill’ and hence of delivery of the bill79. Of course, when the buyer/named consignee wants to transfer the rights of suit to its on-buyer, and the bill of lading is to the buyer/consignee’s order, the consignee/buyer must endorse the bill of lading if they want to transfer the rights of suit to an on-buyer: accordingly, unless that consignee/buyer endorsed the bill, the on-buyer would not obtain any rights of suit through COGSA 199280. Thus, while the original buyer/consignee could not reject the bill of lading against their own seller (the shipper) on the basis that the latter had themselves not endorsed the bill, the buyer would need to endorse the bill themselves if they wished to sell the goods on in transit.

Bills of Lading Made Out to Shipper’s Order Must be Endorsed by the Shipper to Transfer Rights of Suit Where a bill of lading is made out to shipper’s order81, it would appear82, subject to what is said in the next paragraph, that for a buyer to obtain a right of action against the carrier on the basis of the bill of lading, they would need to be ‘a person with possession of the bill as a result of the completion, by delivery of the bill of any indorsement of the bill’ (emphasis added), according to COGSA 1992 s 5(2)(b). The consequence would appear to be that a buyer would be entitled to reject a bill of lading made out to shipper’s order that was unendorsed. It would also seem to follow that, if the buyer were to accept such an unendorsed bill of lading, then the buyer would be exposed to the risk of rejection by any on-buyer if the bill of lading were again tendered to the on-buyer unendorsed. The intermediate buyer would, of course, be able to rectify the defect in the bill 78 But see Aikens at para 8.41, where the opposite view appears to be taken, without, it must be said, any authority; the Aegean Sea [1998] 2 Lloyd’s Rep 39, there cited, goes to a different point, namely whether a person to whom the bill of lading is endorsed in error is a lawful holder within the meaning of s 5(2)(a) of the Act. 79 Support for this position can be found in UCO  Bank v Golden Shore Transportation Pte Ltd [2005] SGCA 42; [2006] 1 SLR at p 1, paras 21–32, which, hearteningly, cites an earlier version of this text, with approval. See also The Erin Schulte [2013] 2 Lloyd’s Rep 338 at 345, paras 45–51. 80 See COGSA 1992 s 5(2)(b). 81 The phrase is here used to include: bills of lading which simply contain the word ‘order’ in the consignee box; bills which contain the name of the shipper plus the words ‘or order’ in the consignee box; and bills which contain the phrase ‘shipper’s order’ in the consignee box. 82 See Goode Commercial Law, at para  32.53: ‘where the consignee is designated “order”, this means that it is transferable by indorsement of the shipper and delivery’ (emphasis added), although no decided authority is cited for this proposition. Other major works avoid raising the issue explicitly, although they can be read to imply likewise that the shipper’s endorsement is required: see Benjamin at para 18–095 and Scrutton at 10–001, article 107.

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4.29

4.30 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier of lading before tender by endorsing the bill themselves, in full or in blank83, to the on-buyer. Section 5(2)(b) of COGSA 1992 requires ‘the completion, by delivery of the bill, of any indorsement of the bill’ (emphasis added) without identifying whose endorsement would bring the document within the words of the section. It appears, therefore, that in the case here envisaged the intermediate buyer’s endorsement would suffice.

Shipper’s Order Bills of Lading Compared with Bills of Lading Made Out to the Order of a Named Consignee 4.30

We are left, therefore, with the ostensibly surprising position that a bill of lading made out to the order of a named consignee does not require an endorsement by the shipper, while one which simply gives the word ‘order’ as the consignee does so require84. At first glance, it is difficult to see in principle why the shipper’s endorsement is required in the latter case but not in the former. If a named consignee does not need an endorsement from the shipper, why would a transferee of a bill of lading which the carrier has been quite happy to issue simply ‘to order’ need an endorsement? This result does, however, appear to follow from the bald words of COGSA  1992 s  5(2)(b). In the absence of any judicial manipulation of the wording of that section in this context, it would seem therefore that the following steps would be advisable. First, where a shipper of goods covered by a bill of lading made out simply ‘to order’ wishes to sell the goods by transferring the bill of lading, it is advisable for the shipper to endorse the bill and for the buyer to insist on such endorsement, preferably through express stipulation in the sale contract, so as not to imperil its rights of suit against the carrier in case of loss or damage in transit. Secondly, if an intermediate buyer has accepted such a document unendorsed by the shipper, it should avoid any attempt by its on-buyer to reject the bill of lading for the lack of the shipper’s endorsement by endorsing the document itself. Thirdly, where a buyer receives a bill of lading made out to its order, the buyer cannot reject the bill of lading for lack of endorsement by the shipper; but, if the buyer wishes to sell on such a bill of lading, then the buyer should endorse it.

How Must the Seller Endorse the Bill of Lading? 4.31

There is no statutory or common law requirement that a bill of lading must be endorsed in a specific way. The manner in which bills of lading are endorsed – and indeed the ease with which such endorsements can actually be deciphered – varies enormously. Whether or not a seller has performed their duty to tender appropriate documents and whether the buyer is consequently obliged to take up the documents tendered would appear to be governed by two basic principles. First, if the sale contract stipulates how the bill of lading tendered must be 83 Ie with an endorsement to no particular person. This has the effect of turning the bill of lading into a bearer instrument. 84 Aikens (at para 8.45) agrees.

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Where COGSA 1992 Does not Operate, the Buyer may Rely on an Implied Contract 4.32 endorsed, then the seller must tender a bill of lading that conforms with such a stipulation85. Thus, if the sale contract requires the tender of a bill of lading endorsed in full (ie  to a specific person not just stamped) to the buyer86, the tender of a bill of lading endorsed in blank would appear not to conform to the contractual stipulation, even though such a bill could easily be transferred on by the buyer through endorsement. Secondly, if the sale contract makes no express stipulation as to the manner in which the bill of lading should be endorsed, then the default position is that the bill of lading tendered should give the buyer the right to claim delivery of the goods from the carrier, the right to bring a cargo claim against the carrier in case of transit loss and the power to transfer those rights on through transfer of the bill of lading. Anything less than that would prevent the buyer from fully exploiting the commercial opportunities of the bill of lading while the goods are in transit.

WHERE COGSA 1992 DOES NOT OPERATE, THE BUYER MAY RELY ON AN IMPLIED CONTRACT AND/OR NEGLIGENCE The Buyer may be Able to Rely on an Implied Contract If the seller has not endorsed a bill of lading in the manner required to make the buyer a ‘lawful holder of a bill of lading’ for the purposes of COGSA 1992, then they will not acquire the contractual rights of suit as between the shipper and the carrier under the Act. The same is true if the buyer is not named as a consignee on a sea waybill or a straight bill of lading or is not the attornee on a ship’s delivery order. But the absence of contractual title to sue under COGSA 1992 does not mean that the buyer is left without remedies, or can only claim under their insurance policy (and that their insurer is left with no subrogated right of action against the carrier, the assured having no title to sue in its own name). Where the buyer cannot for some reason bring themselves within the categories of persons endowed by the Act with the seller’s rights of suit87, it may be necessary for the buyer to argue that the facts justify the construction of a Brandt v Liverpool Brazil and River Plate Steam Navigation Co Ltd88 implied contract, which originated prior to COGSA 1992. Indeed, where buyers were left out in the cold by their sellers prior to COGSA 1992 (that is to say, when the Bills of Lading Act 1855 was still

85 Where payment is effected by letter of credit, the seller’s duty towards the buyer is to tender, as beneficiary under the letter of credit, documents which comply with the requirements of the letter of credit. This is hardly a duty that the seller is likely to breach if it wants to be paid by the bank. 86 That is to say, naming the buyer next to the endorsement. 87 See Chapter 2 and Benjamin, paras 18–180 to 18–188. 88 [1924] 1 KB 575.

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4.32

4.33 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier in force89), the courts developed a mechanism, known as the implied contract device, which constructed a contract of carriage where the facts made such a contract commercially sensible. This device ‘often involved an element of fiction, even detective work’90 and one of the main aims of COGSA 1992 was to make recourse to this device less necessary. It does not follow, however, that the device is now completely unnecessary.

Brandt v Liverpool Brazil and River Plate Steam Navigation Co Ltd91 4.33

In Brandt v Liverpool, a pledgee of the bill of lading who had taken delivery of goods sued the carrier in respect of damage caused to the goods in transit. The carrier disclaimed liability on the grounds of the absence of privity of contract. The terms of the bill of lading were worth little to the carrier: exceptions contained in the bill of lading could not, on the law as it then stood, avail them as they had been guilty of deviation92. Moreover, there was no tort on which the plaintiff could sue, presumably because the act of which they complained had occurred before shipment, that is to say before they had acquired any possessory interest in the cargo. The carrier’s attempt to escape liability through the expedient of the doctrine of privity was, however, roundly rebuffed by the Court of Appeal which, affirming the judgment of Greer J, found for the pledgee93, a contract being inferred ‘from the fact of taking delivery’94. Any qualms about the absence in fact of anything like an exchange of consideration between the parties were smartly dealt with by Scrutton LJ: the constituent ingredients of the contract here were, on the one hand, a promise by the pledgee ‘to perform the terms of the bill of lading’ and on the other, a promise by the shipowner ‘to deliver the goods on the terms of the bill of lading’95.

Limitations of the Implied Contract Device 4.34

The practical effect of the device is to grant a remedy where one would otherwise be barred, either because the buyer cannot quite bring themselves within the requirements of COGSA 1992 or because the buyer falls outside the restrictive rules imposed on the recovery of damages in tort, to which rules we shall presently refer. Prior to the 1992 Act, the Courts exercised great initiative in construing 89 90 91 92

Repealed by COGSA 1992 s 6(2). See Law Commission No 196 at para 2.12. [1924] 1 KB 575. Ibid at p 597. It is arguable whether this is still the rule after Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. See Debattista ‘Fundamental Breach and Deviation in the Carriage of Goods by Sea’ (1989) JBL 22; Baughen ‘Does Deviation Still Matter’ (1991) LMCLQ 70; and State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep 277. More recently, see The Kapitan Petko Voivoda [2003] 2 Lloyd’s Rep 1 and The Sur [2018] EWHC 1673 (Comm). 93 Who, had the boot been on the other foot, would have been well protected from liability by Sewell v Burdick (1884) 10 App Cas 74. 94 Per Scrutton LJ at [1924] 1 KB 575 at 595. 95 Ibid.

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Where COGSA 1992 Does not Operate, the Buyer may Rely on an Implied Contract 4.35 contracts from facts and there is no reason to suppose that any less initiative will be exercised if a similar need were to arise in the future. Given the wider ambit of cargo claimants now brought into contractual privity with the carrier, though, the need for such recourse has receded and, in a real sense, the withering away of the need for implying contracts of carriage, at times practically out of thin air (at any rate, to conservative eyes), is an index of the success of the 1992 Act and its wider ambit of potential cargo claimants. This is fortunate for cargo interests given that there were, in any case, some limits to the operation of the device. Thus in The Elli 296, the Court of Appeal allowed a claim for demurrage by a shipowner against a buyer of goods who had taken delivery without producing a bill of lading. The court made it clear that there had to be some facts supporting the construction of the implied contract, some basis for a finding of consideration. Although the court found that a contract could be implied even though freight was no longer due under the bill of lading97, May LJ took care to distinguish the case before the court from circumstances where ‘nothing remains to be done in performance of the relevant contract of carriage save physically to hand the goods over to the receiver’98. At p 115 of the report, he says: ‘no such contract should be implied on the facts of any given case unless it is necessary to do so: necessary, that is to say, in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.’ Again, the limitation to the amount of fiction to be drawn from slender fact is apparent from The Aramis99, where no promise to deliver goods could be imputed to the carrier, there being no more goods to deliver. Despite this obstacle, Evans J nonetheless found that a contract could be implied from the fact that the carrier had delivered other goods, shipped in bulk with the plaintiff’s goods, to other receivers under other bills of lading. In reversing Evans J, the Court of Appeal recognised the good sense and commercial convenience of the judge’s decision but overturned it on the ground that it went a step too far away from the doctrine of consideration100. The effect of the Court of Appeal’s decision was to render the 96 [1985] 1 Lloyd’s Rep 107. 97 It was sufficient if ‘other considerations, such as demurrage’ were outstanding: The Elli 2 [1985] 1 Lloyd’s Rep 107 at p 115. 98 Loc cit 116; see also The Kelo [1985] 2 Lloyd’s Rep 85, where Staughton J was not prepared to infer a contract from the mere taking up of delivery in return for the presentation of freight prepaid bills of lading. 99 [1987] 2 Lloyd’s Rep 58; reversed [1989] 1 Lloyd’s Rep 213: see particularly p 225. See, generally, Powles ‘The basis of the carrier’s liability to the shipper or consignee (sea)’, (1989)  JBL  157, 160–5. 100 See the note on the case by Mr P De Val at 1987 LMCLQ 258. Cf The Captain Gregos (No 2) [1990] 2 Lloyd’s Rep 395 at 403, where the Court of Appeal questioned the correctness of The Aramis. In The Gudermes [1993] Lloyd’s Rep 311, Staughton LJ makes it clear, however, at p 323, that for a contract to be implied rather more is required than ‘that both parties were prepared to co-operate in finding a solution to the problem that had arisen’.

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4.36 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier implied contract device the least useful when it was the most necessary, that is to say where the receiver receives no goods at all101 and the case would, today, have gone the other way thanks to COGSA 1992 s 5(4)(a).

A Buyer Could Bring an Action in Negligence 4.36

In the improbable circumstance that a buyer bearing the risk of transit loss can bring themselves neither within COGSA  1992 nor within the circumstances required to construct an implied contract, they can consider bringing an action against the carrier in the tort of negligence. For such an action to succeed, however, the plaintiff must prove that, at the time of the alleged negligence causing the loss complained of, they had a proprietary interest in the goods (eg  ownership or constructive possession), the latter of which provides a right to delivery of the goods on discharge: The Aliakmon102. Though it is not inconceivable that a buyer could prove that they owned or had constructive possession of a particular parcel of goods at the very time that the negligent act complained of occurred103, it is extremely unlikely because, if they had constructive possession at the time of the tort, they would likely be able to bring themselves within the terms of COGSA 1992.

101 For a particularly telling note, see B J Davenport, in (1989) 105 LQR 174, where Mr Davenport writes, at p 178, ‘… the strength of English commercial law is that in the past the judges sought to give effect to good sense and underlying commercial convenience. If the judges of the past had adopted the attitude of the Court of Appeal in The Aramis, would we today have the letter of credit – or even the bill of exchange?’. See also G  H  Treitel ‘Bills of Lading and Implied Contracts’ in 1989 LMCLQ 162, where Professor Treitel argues that the Court of Appeal might have reached the same conclusion arrived at by Evans J, through an altogether more traditional route, namely the implication of contracts ‘in law’, to which the normally stringent requirements of the common law (eg business efficacy) do not apply. 102 [1986] 2 Lloyd’s Rep 1. The reaction in the literature was hostile. In ascending order of hostility to the decision, see the following: G H Treitel ‘Bills of Lading and Third Parties’ (1986) LMCLQ 294, particularly at 301–4, where Professor Treitel is less impressed with the arguments based on certainty than with those relating to the exclusion clauses in the bill of lading; ‘The Carrier and the non-owning Consignee – An Inconsequential Immunity’, at 1987  JBL  12, where Mr A M Tettenborn, though broadly supportive of the decision, concludes that ‘no shipping lawyer need get particularly excited about The Aliakmon’; Professor Schmitthoff, in Export Trade, at p 40, where he warns that the decision ‘will not be welcomed by those engaged in international trade’; note by Dr Malcolm Clarke in [1986] 45 CLJ 382; and, for the most uncompromising critique, see B Markesinis ‘An Expanding Tort Law – The Price of a Rigid Contract Law’ (1987) 103 LQR 354 at 384–90, where Professor Markesinis suggests that the case is ‘remarkable but for all the wrong reasons.’ 103 Prior to COGSA 1992, attempts at using the tort of negligence as a cause of action were mostly made by buyers of commodities shipped in bulk, where ownership of the particular parcel damaged at the time when the alleged act of negligence was committed was difficult. But see The Hamburg Star [1994] 1 Lloyd’s Rep 399, where Clarke J found that there was a good arguable case for a tort claim against a shipowner.

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Where COGSA 1992 Does not Operate, the Buyer may Rely on an Implied Contract 4.40

Damages Under the Carriage Contract Should Take Account of Benefits Under the Sale Contract The passing of risk, the transfer of rights of suit and the transfer of constructive possession by a seller to a buyer are designed to ensure that it is clear whether the buyer should claim against the seller or the carrier, if something happens to the goods that causes the buyer loss. However, no system is perfect. For instance, in the case of damaged goods it is frequently unclear exactly at what point the damage occurred, before or after loading: for example, bills of lading often say on their face ‘weight, quantity, value unknown’ and that the container is ‘said to contain’ X. In such circumstances, where those bills say on their face ‘apparent good order and condition’, this does not have the effect of a contractual warranty to the effect that the carrier is promising that the goods were in fact in good condition when loaded; for example, the master can hardly be expected to open every box of frozen shrimps in a refrigerated container and test them104.

4.37

Nevertheless, in such circumstances, where the goods are damaged, the buyer will, ordinarily, try to sue the carrier under the contract of carriage on the basis that the bill of lading did not qualify the apparent condition of the goods. But the buyer may also demand, under the sale contract, that their seller deliver the goods for free, pay compensation, or offer a reduction in price due to the loss suffered. The seller may have a perfectly good defence to such a demand by the buyer if they can prove that the goods were in fact loaded in good order and condition, but it frequently happens that, for purposes of commercial expediency, the seller settles with the buyer in order to maintain a good business relationship.

4.38

In such circumstances, one might think that a carrier, faced with a claim by a buyer, should be able to ask the buyer whether they have also recovered from the seller under the sale contract. The carrier would do this with a view to factoring any recovery already made under the sale contract into the quantification of any recoverable loss under the carriage contract. The traditional view is that the two contracts are treated as irrelevant to one another, and recovery under one is res inter alios acta as regards recovery under the other105. In effect, the buyer can on this basis recover twice for the same loss.

4.39

In our view, this long-standing principle is no longer sound law in view of the recent Supreme Court authority Swynson v Lowick106. In that case, Lord Neuberger explained (at para 98) that the type of cases for which payments that are not to be taken into consideration in assessing damages include: (a) where the claimant has effectively paid for the benefit out of their own pocket (such as by paying insurance premiums); or (b) payments which are the result of benevolence (either from a government, charity, family or friends). While Lord Neuberger recognised that there are exceptions to this rule, it is hard to see, as a matter of principle, why,

4.40

104 See Chapter 6 for more on the function of a bill of lading as a receipt, going to the quality and quantity loaded. 105 The Sanix Ace [1987] 1 Lloyd’s Rep 465; The Baltic Strait [2018] 2 Lloyd’s Rep 33. 106 [2017] UKSC 32.

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4.41 Buyer Assumes Risk of Loss: Circumstances in Which They can Sue the Carrier after Swynson v Lowick, the application of the doctrine of res inter alios acta in cargo claims, which might lead to double recovery, should continue to survive. 4.41

Our resistance to the res inter rule in cargo disputes also accords with the emphasis placed by the Supreme Court on the ‘compensatory principle’ and the consequent flexibility shown by the Supreme Court regarding the date of assessment of damages for breach of contract in The Golden Victory. In that case, the Supreme Court put it thus107: ‘The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always.’ In other words, it can be appropriate to take into consideration circumstances after a breach such as payment by a seller to a buyer for losses suffered during transit. We suggest that the traditional position taken in the shipping context is now in need of serious reconsideration, given the above two cases in the Supreme Court.

107 [2007] UKHL 12 at para 32.

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Chapter 5

The Time When Property Passes to the Buyer

PROPERTY AND WHEN IT IS RELEVANT 5.1 SOGA 1979 AND THE TRANSFER OF PROPERTY 5.4 Five Presumptions as to the Passing of Property When There is no Express Term in the Contract 5.5 (a) Ascertainment and Appropriation of Goods 5.6 (b) Where a Seller is Insolvent, Property in Commingled Goods Already Paid for can Pass Without Ascertainment 5.8 (c) ‘Unconditional Appropriation’ 5.9 (d) Declaring to the Buyer That the Goods Have Been Shipped is Distinct From Transferring Property in Those Goods 5.12 CONTRACTUAL TERMS AS TO THE TRANSFER OF PROPERTY 5.13 TRANSFER OF PROPERTY AND BILLS OF LADING 5.17 TRANSFER OF PROPERTY AND LETTERS OF CREDIT 5.21

PROPERTY AND WHEN IT IS RELEVANT Property is Significant in International Trade In their different ways, the preceding three chapters in this book have concentrated on the transfer (constructive and/or actual) of the goods’ possession. Another consideration that is of vital importance to international trade lawyers is when property passes1. Indeed, there are instances when practical disputes can only be answered by first determining where the property in a particular parcel of goods lay at a particular moment. The most obvious cases are those where an innocent third party purchaser of the goods is allowed to prevail over a previous owner who has put a fraudster in the position of misusing documents of title to the 1

One might be forgiven for thinking as much, given that both Incoterms 2020 and the Vienna Convention on International Sale of Goods fail to deal with the transfer of property. (See Incoterms 2020: it is stated at p  3 of the Introduction that the Rules ‘do NOT deal with the transfer of property’.) As for the Vienna Convention, CISG does impose upon the seller in article 30 a duty to ‘transfer the property in the goods’, but that is the totality of the Convention’s involvement with property. SOGA 1979 does not even go that far, with section 27 curiously not expressly imposing any duty on the seller to transfer property: see Bridge International Sale of Goods (2017, 4th edn) (hereinafter referred to as ‘Bridge’) at para 7.01.

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5.2

The Time When Property Passes to the Buyer

goods, as envisaged by SOGA 1979 ss 24 and 252. The second is where insolvency strikes either seller or buyer and the creditors of the insolvent party wish to put the cargo within the estate of the insolvent, thus forcing the other party to the sale contract to compete with them in the insolvency for the goods that were the subject of the sale3. Again, in time of war, the Crown may want to seize a cargo in prize, by effectively jumping the queue of claims over a cargo, and this it could do by proving that the cargo was owned by an enemy alien4. Finally, SOGA 1979 s 49 makes the unpaid seller’s action for the price against the buyer conditional upon property having passed to the buyer5.

Property and Possession are Different Concepts 5.2

The parties normally seeking protection by proving that one or other of the immediate parties to the sale contract owned the goods are in most cases third parties to that contract: (1) creditors of an insolvent estate, (2) innocent third party purchasers, or (3) the State. (ie not the parties most immediately involved in the relevant sale contract, namely the immediate seller and the immediate buyer). The question of ownership tends to be asked where a particular6 rival, typically a third party to the sale contract, seeks to bring a stronger claim to the goods

2 3

4 5

6

See para 3.7 above. See Goode Proprietary Rights, paras 1.06, 1.07 and 1.39. Thus, where the seller becomes insolvent, the buyer will argue that property had passed to them prior to the seller’s insolvency, such that they would have a real right over the goods, thus excluding them from the claims of the seller’s unsecured creditors. Likewise, where the buyer becomes insolvent, the seller will argue that property had not passed to the buyer before their insolvency, such that, if the goods have since reached the buyer, the seller could exercise a real right over them, thus excluding them from the claims of the buyer’s unsecured creditors. See also Benjamin at para  5–005 and Bridge at para 7.03. See D P O’Connell The International Law of the Sea (1982), p 1113. Section 49(1) reads: ‘Where, under a contract of sale, the property in the goods has passed to the buyer, and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods’. Section 49(2) allows the seller to bring an action for the price, irrespective of whether property has passed to the buyer, where ‘the price is payable on a day certain irrespective of delivery’. It is doubtful whether a stipulation that payment be made ‘against documents’ is one which comes within s 49(2) such that a seller could sue for the price, rather than for damages, if the buyer refuses to pay on tender: contrast Polenghi v Dried Milk Co Ltd (1904) 10 Com Cas 42 to, for example, Stein Forbes & Co v County Tailoring Co (1916) 115 LT 215 and other cases cited and discussed in Benjamin at paras 19–238, on where property has passed (s 49(1)), and 19.239–19.240 on where property has not passed (s 49(2)). ‘Particular’ because of ‘the elementary proposition of our law that title to tangible property, whether land or chattels, is relative … Given such a concept, the phrase ‘owner of property’ assumes significance only in relation to a particular issue with a particular person’: see the seminal article by G Battersby and A D Preston, ‘The Concepts of “Property”, “Title” and “Owner” Used in the Sale of Goods Act 1893’ (1972) 35 MLR 268, at 269; for a contrary view, see Iwan Davies ‘Absolute Title Financing’ (1985) Anglo-American Law Review 71, particularly at 72–3. For a spirited defence of Battersby and Preston’s thesis in their 1972 article that, in the context of SOGA, the words ‘property’ and ‘title’ bear the same meaning, see now Battersby ‘A  Reconsideration of “Property” and “Title” in the Sale of Goods Act’ [2001] JBL 1.

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5.5

against the current pretender, the holder of the goods or of the documents7, which holder is a party to the sale contract. The question of possession, on the other hand, tends to be asked by the buyer of the seller, where a buyer demands or wishes to transfer the right to claim physical delivery of the goods from the carrier. Possession, then, is about control of the goods as between the seller and the buyer; ownership is about the relative ranking of claims within a wider pool of rivals: this is borne out by the contexts in which it is most frequently necessary to establish who owns a particular cargo8.

5.3

SOGA 1979 AND THE TRANSFER OF PROPERTY Property Passes When the Parties Intend it to Pass SOGA 1979 starts from the proposition that property passes from seller to buyer when the parties intend it to pass. According to section 17:

5.4

‘(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.’ It is difficult to over-emphasise the significance of express clauses in the contract determining when ownership is to pass. If the parties have made clear in their contract when they intend property to be transferred, the presumptions set out in the Act for the discernment of their intention become irrelevant. For the present, though, we shall assume that the parties have failed to make their intention clear and that the courts are, therefore, thrown upon the five presumptions set out in the Act. We deal with when the parties have made their intentions clear at paragraph 5.13 onwards.

Five Presumptions as to the Passing of Property When There is no Express Term in the Contract There are five presumptions (called ‘rules’) as to when property passes contained in SOGA 1979 s 18: of these, the fifth rule, which relates to bulk (ie undivided) cargos is the most relevant to the large majority of international sales. In addition to section18, rule 5, other relevant sections include sections 16, 19, 20, 20A and 20B. As we shall go on to examine, two concepts are fundamental to the working of these sections, namely: (1) ascertainment; and (2) appropriation. 7 8

Where the goods are still held physically by the carrier. This may well explain why SOGA 1979 does not expressly impose a duty on the seller to transfer property (see fn 1 above; the Act, says Bridge at para 7.01, simply ‘assumes a willing seller’).

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5.6

The Time When Property Passes to the Buyer

By contrast, the first three s 18 rules regulate the passage of property in specific goods; and the fourth refers to the sale of goods on sale or return terms. They are, accordingly, less likely to be relevant to international shipping contracts. Specific goods are defined in section 61(1) of the Act as: ‘goods identified and agreed on at the time a contract of sale is made’. Thus, the first three of the rules given in section 18 of the Act relate to contracts the subject matter of which would be, for example, ‘this particular shipment of cars, identified by the following chassis numbers’. While it is perfectly conceivable for an export contract to be concluded on such terms9, international sales more commonly refer to goods of a particular type rather than to particular goods: thus, it is more likely that the parties will agree to sell and buy, for instance, ‘cars of such and such a type’10. To describe goods in this generic way would take them out of the Act’s definition of specific goods, and consequently would take the sale outside the scope of section 18, rules 1 to 3. Rule 4 is unlikely to be relevant to international sales because, again, such contracts are unlikely to be on sale or return terms.

(a)  Ascertainment and Appropriation of Goods Ascertainment is Necessary for Property to Pass 5.6

Section 16 provides that property in goods cannot pass to the buyer ‘unless and until the goods are ascertained’ (subject to section 20A of the Act). Goods are ascertained where, having been shipped in bulk with other people’s cargo, they are subsequently separated from that bulk. By contrast, they are unascertained if they are stored or shipped together with other goods of the same type and, where this is the case, property cannot, subject to the circumstances envisaged in section 20A, pass to the buyer before goods in the quantity sold are separated from the bulk11. Thus, for example, if 500 tonnes of sugar are shipped in a particular vessel and the seller has agreed to sell 250 tonnes of such sugar to the buyer, property in the 250 tonnes sold to the buyer cannot pass before the sugar has been separated into different lots of which one amounts to 250 tonnes. This will typically happen when 250 tonnes of the sugar are discharged, thereby physically separating, or ‘ascertaining’, the two parcels: until that physical act of separation occurs, property in neither ‘parcel’ of the sugar can pass from the seller to any buyer. This is the position unless section 20A applies12 or unless a process called ‘appropriation by exhaustion’ has occurred13, both of which are discussed below. 9

10 11 12 13

See, for example, Wiehe v Dennis Bros (1913) 29 TLR 250. For goods to be specific, they must be ‘identified and agreed on at the time a contract of sale is made’, pace s 61(1): thus, goods which were, at the time the contract was concluded, unascertained and not unconditionally appropriated, but which are ascertained and unconditionally appropriated after the contract is concluded, do not become specific goods for the purposes of the Act. See, for example, the sale contract underlying the letter of credit which was the subject of litigation in Bank Melli Iran v Barclays Bank [1951] 2 Lloyd’s Rep 367 (100 new Chevrolet trucks). See Bridge at para 7.16. See para 5.8 below. See para 5.11 below.

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5.8

Ascertainment is Necessary but not Sufficient to Pass Property Once goods are ascertained (for example, by the separation of the 250 tonnes from the larger bulk), property in them can then be ‘appropriated to’ (ie allocated to) the buyer. This process of allocation is called ‘appropriation’ by the Act in section 18, rule 5. Both ascertainment and appropriation are necessary for the transfer of property in the goods14. Ascertainment simply separates 250 tonnes of the sugar away from the remaining 250 tonnes; for property to pass, the seller must then appropriate one of the two separated parcels of sugar to the buyer.

5.7

(b)  Where a Seller is Insolvent, Property in Commingled Goods Already Paid for can Pass Without Ascertainment Delaying the transfer of ownership in goods shipped in bulk until the ascertainment and appropriation of the goods might cause hardship to buyers who had paid the price of the goods to a seller who became insolvent before the goods reached the buyer. For example, if the seller in the above example had been paid and had become insolvent before the sugar had reached the buyer, the buyer would have no ownership in the sugar, which would still form part of the assets of the insolvent seller, subject consequently to the claims of other creditors with whom the buyer would need to compete, as an unsecured creditor, for the price15. Buyers in this position are, however, protected by SOGA 1979 s 20A, the main purpose of which section is to introduce into the English law of sale of goods the concept of shared ownership in commingled goods in an identified bulk16. Under section 20A, ascertainment of the goods is no longer required for the transfer of ownership in a specified quantity of goods in an identified bulk where the buyer has paid for some or all of the goods covered by the contract forming part of the bulk. Consequently, instead of having to wait for the separation of the goods from the bulk for property to pass, the buyer receives shared ownership in the goods when two conditions are satisfied, namely: (1) that the bulk has

14 See paras 5.9–5.10 below. 15 Attempts to protect the buyer through equity failed dismally in Re Wait [1927] 1 Ch  606: see Bridge at paras 7.16–7.22 and, more generally, Benjamin at para 5–110. 16 See Benjamin, paras 5–111 to 5–130. The section was introduced into SOGA 1979 by the Sale of Goods (Amendment) Act 1995, which was the result of a Law Commission Working Paper entitled ‘Rights to Goods in Bulk’, no 112. The model of shared ownership used was adopted from section 2.105(4) of the Uniform Commercial Code of the United States of America: see Working Paper no 112, paras 4.4–4.14 and Davies, ‘Continuing Dilemmas with Passing of Property as part of a Bulk’ [1991] JBL 111. Section 20A has yet to be applied in the context of an international sale.

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5.9

The Time When Property Passes to the Buyer

been identified17; and (2) that the price has been paid18. When these conditions are satisfied, the buyer receives ownership in such a share of the goods as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time. Thus, in the former example, if the seller became insolvent prior to discharge from an identified bulk of 500 tonnes, the buyer who had paid for 250 tonnes of sugar would become the owner, at the time of identification of the bulk or of payment, whichever is the later, of one half of the sugar contained in the identified bulk at that time. Moreover, if the sum of the bulk were to decrease by the time of discharge, then the buyer would still own one half of the discharged bulk and is deemed, by section 20B, to have consented to other owners in common having the ownership of shares of the bulk calculated in the same way.

(c)  ‘Unconditional Appropriation’ Section 18, Rule 5 5.9

Where the goods are in bulk and have not yet been paid for (ie where ascertainment is necessary for the transfer of ownership and the goods fall outside the s 20A exception), ascertainment is not, on its own, sufficient to effect the transfer of the goods. In such a scenario (in the absence of an express clause in the contract indicating when ownership is to pass), what ultimately marks the moment at which property in the goods passes from seller to buyer is appropriation. The concept is introduced into SOGA 1979 by section 18, rule 5, subsection (1), which reads: ‘18. Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

17 SOGA 1979 s 20(1)(a). For section 20A to operate, the bulk containing the goods sold must be identified: where this condition is not met, as in Re Goldcorp Exchange Ltd (in receivership) [1994] 2 All ER 806, the section would not operate and ascertainment would still be a necessary prerequisite for the transfer of property. The bulk needs to be identified, according to section 20A(1)(a), ‘either in the contract or by subsequent agreement between the parties’. This would appear not to cover the typical situation where a CIF seller notifies the buyer, after the contract has been concluded, that the goods have been shipped on a named ship (through what is confusingly called a ‘notice of appropriation’: see para 5.12 below). Such a declaration of shipment does not identify the bulk ‘in the contract’ or ‘by subsequent agreement’ (emphasis added). It has been suggested that the courts should adopt a relaxed, purposive approach to this difficulty, lest the section otherwise ‘fail to deal with what is probably the single most significant mischief which it was entitled to cure’. See Benjamin at para 18–343. 18 SOGA 1979 s 20(1)(b).

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5.10

Rule 5. (1) Where there is a contract for the sale of unascertained19 or future goods by description20, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made.’

What is Appropriation? Unconditional appropriation is the act by which a seller allocates a particular parcel of goods to a particular contract, so that goods generically described as, say, ‘sugar of this type’, are specifically attached to a contract of sale as ‘this parcel of sugar’21. Consequently, the act of appropriation will commonly be an act performed by the seller irreversibly22 identifying the goods as those sold to the particular buyer23. The Act itself gives a very obvious illustration of one such act, namely, the act of delivery to the carrier; section 18, rule 5, subsection (2) reads: ‘Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the buyer.’ The starting point in the Act, then, is that shipment is assumed to pinpoint the moment at which the seller has irreversibly appropriated the parcel shipped to a 19 The text of section 18, rule 5 causes some difficulty here, for appropriation is said to be necessary to pass property in unascertained goods. If this is right, then section 16, which makes ascertainment necessary for the passage of property, is either contradicted or rendered otiose by section 18, rule 5. For, if appropriation passes property in unascertained goods, according to section 18, rule 5, then it cannot be true, in terms of section 16, that property in such goods cannot pass without ascertainment; unless, that is, appropriation in section 18, rule 5 is the same as ascertainment, in which case section 16 becomes redundant. The truth, surely, is that the two notions are separate in law: ascertained goods too need to be appropriated, because goods separated from a larger bulk still need to be allocated to a particular buyer for property to pass; although, of course, in most cases, the two processes of separation and allocation would happen at the same time. If this is right, then the way out of the resulting conundrum is to read the word ‘unascertained’ in section 18, rule 5 to mean ‘originally unascertained, but now ascertained as required by s 16’. The difficult relationship between section 16 and section 18, rule 5 was referred to by Mustill J in The Elafi [1982] 1 All ER 208, at 214–5, where the judge concluded that ‘it appears legitimate to place appropriation on the same broad basis as ascertainment’, the result of which view, as has been indicated above, would be that section 16 would be rendered otiose. 20 ‘Future goods’ are defined by section 61(1) as ‘goods to be manufactured or acquired by the seller after the making of the contract of sale’. 21 See para 5.7 above. 22 This is why section 18, rule 5 of the Act insists on the assent of both parties to the appropriation: see Goode Proprietary Rights at paras 1.49–1.50 and Benjamin at para  5–074. Such assent is generally inferred from the terms of the contract or the practices of the trade: see Ross T Smyth & Co Ltd v Bailey, Son & Co [1940] 3 All ER 60; in a similar vein, see Atiyah, p 292. 23 See Carlos Federspeil & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 at 255, per Parker J.

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5.11

The Time When Property Passes to the Buyer

particular buyer. This clearly cannot be the case, though, in three circumstances: (1) where the goods are shipped as part of an undivided bulk, ascertainment being a necessary precondition for the transfer of property according to section 16 of the Act (hence the importance of SOGA 1979 s 20A); (2) where the parties have agreed otherwise in the contract; and (3) where the manner in which the parties have completed or dealt with the shipping documents indicates a different intention. We shall look at each of these situations in the succeeding paragraphs24.

Appropriation by Exhaustion 5.11

Situations may occur where it becomes clear before discharge that the entire cargo on the vessel or in an identified hold is destined for the same buyer. Thus, for example, if 500 tonnes of sugar are shipped and 250 tonnes destined for buyer 1 are discharged en route, leaving a remaining 250 tonnes of the same type of sugar on board, belonging to buyer 2, then the property will pass to buyer 2 at the point when the original 250 tonnes are unloaded, because buyer 2 now owns all the goods on board. Similarly, if the sale contracts have not been concluded at the time of shipment, the seller may end up selling all 500 tonnes to the same buyer25. Alternatively, one of the two buyers may sell their 250 tonnes to the other buyer, again leaving all 500 tonnes to the same buyer. In all these cases, a separate act of allocation to a particular contract of sale would not be necessary to transfer property: so long as all the sugar of the contract type in the identified bulk is intended for the same buyer26, the goods, originally unascertained and unappropriated, have been appropriated to that buyer ‘by exhaustion’. This position was first clarified by the courts in The Elafi27, and was then included in SOGA 197928.

(d)  Declaring to the Buyer That the Goods Have Been Shipped is Distinct From Transferring Property in Those Goods 5.12

‘Appropriation’ in the sense in which that word is used by section 18, rule 5 of SOGA 1979, is a physical act identifying the goods and, if unconditional, causing the property in them to pass from seller to buyer. The word ‘appropriation’ as used in this specific ‘property’ sense needs to be distinguished from the CIF seller’s obligation to declare the ship upon which they intend to load the goods, 24 For appropriation by exhaustion where goods are shipped in bulk, see para  5.11 below and para 5.8 above; for the effect of reservation of title clauses, see paras 5.13–5.16; for the effect of shipping documents on the transfer of property, see paras 5.17–5.19. 25 The process here may more properly be called ‘consolidation’ rather than ‘exhaustion’: see Benjamin, para 5–063. 26 It must be clear that all the goods of the same type, on the same vessel, or in the same warehouse, are intended for the same buyer: see In re London Wine Co Ltd [1986] PCC 121, at 152–6. 27 [1982] 1 All ER 208; see also Wait & James v Midland Bank (1926) 31 Com Cas 172. 28 See section 18, rule 5(3), (4), added to the Act by SOGA 1995 s 1(2). See Sale of Goods Forming Part of a Bulk, Law Commission No 214, para 4.11.

128



Contractual Terms as to the Transfer of Property

5.13

a declaration sometimes confusingly called a ‘notice of appropriation’. The two quite separate concepts are easily confused by the untidy use of the word ‘appropriation’ to signify either concept. The phrase ‘notice of appropriation’ might usefully be substituted by ‘declaration of shipment’29, leaving the word ‘appropriation’ to be used in its proper context, namely in the passage of property from seller to buyer30. For instance, standard term CIF contracts commonly impose upon the seller the duty to notify the buyer of the vessel upon which the goods sold are to be shipped31. The commercial purpose of the duty is twofold. First, where the buyer intends to receive the goods themselves, receipt of the notice of appropriation enables them to make the necessary arrangements for receiving the goods at the port of discharge; secondly, where the buyer sells the goods while they are in transit, the notice enables them to describe the goods they sell as goods shipped on board the declared ship. The legal effect of the notice of appropriation is that it defines the promise which the seller is bound to perform when they tender the bill of lading to the buyer: consequently, a seller who had declared shipment on the Mahout was in repudiatory breach when they tendered a bill of lading stating goods to have been shipped on the Mahsud32. This notice of appropriation is a formal notification, defining the seller’s contractual obligation as to the shipment of the goods33. But it is not appropriation in the sense described by section 18, rule 5 of SOGA 1979.

CONTRACTUAL TERMS AS TO THE TRANSFER OF PROPERTY The Seller can Reserve the Right of Disposal of Property For property in the goods sold to pass to the buyer through appropriation, the appropriation must be unconditional. While section 18, rule 5, subsection (2) raises a prima facie presumption that the shipment of ascertained goods will effect appropriation of the goods, that presumption will only operate if the appropriation is not made conditional by the reservation of the right of disposal. There are various ways through which the seller can reserve the right of disposal, such that appropriation be made conditional, and such that, in turn, property will not pass on shipment of the goods. Section 19 of SOGA 1979 provides us with 29 The FOSFA 54 Contract Form uses the phrase ‘Declaration of Shipment’ at cl 10. 30 Professor Goode uses the word ‘quasi-appropriation’ to signify the seller’s declaration of shipment: see Goode Proprietary Rights at para 1.46. 31 See, for example, GAFTA 100, clause 9. 32 Kleinjan & Holst NV Rotterdam v Bremer Handelsgesselschaft mbH Hamburg [1972] 2 Lloyd’s Rep 11, applied in Waren Import Gesellschaft Krohn & Co v Alfred C Toepfer (The Vladimir Ilich) [1975] 1 Lloyd’s Rep 322; doubted on other grounds in Vargas Pena Apezteguia y Cia SAIC v Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394 (measure of damages). 33 See Smyth & Co v Bailey & Co [1940] 3 All ER 60 at 66.

129

5.13

5.14

The Time When Property Passes to the Buyer

the two main considerations34 which the courts take into account in discerning the seller’s intentions as to the passage of property: (1) express clauses in the contract of sale itself or in the means whereby the goods are appropriated to the buyer; and (2) the manner in which the bill of lading is issued, and the way in which it is transferred to the buyer. The first of these two types of factor will be dealt with here, while the second is dealt with in the next section of this chapter. 5.14

Section 19(1) of SOGA 1979 reads as follows: ‘Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation35, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.’ The effect of this section is to enable the seller expressly to retain property in the goods despite their ascertainment under section 16 and their appropriation under section 18, rule 5. Express clauses retaining title commonly found in international contracts for the sale of goods will typically make property pass at a particular physical point36, or at a particular time37, or at one of either38. 34 Section 19(3) deals with the effect which dishonour of the bill of exchange has on the passage of property. 35 It has been suggested that, where the seller reserves title by the terms of the appropriation rather than by the terms of the contract, they may be in breach of their contract with the buyer: see J  R  Bradgate ‘The Post-Contractual Reservation of Title’ (1988)  JBL  477, at 478, 480–1. The proposition appears to be based on the decision in Gabarron v Kreeft (1875) LR 10 Exch 274: in that case, though, as is readily admitted in Mr Bradgate’s article, the goods were arguably not appropriated to the contract. The point of the decision was, in any case, that an innocent third party purchaser of the bills of lading from the seller prevailed over the original buyer: nothing turned on whether or not the seller was in breach of their contract with the original buyer. As Mr Bradgate illustrates, though, the estate of an insolvent buyer may well wish to recover damages for such a breach where the market price of the goods has risen between the time the contract was concluded and the time of the buyer’s insolvency: see ibid at 484–5. 36 See, for example, The San Nicholas [1976] 1 Lloyd’s Rep 8, where the contract of sale stipulated that property would pass ‘at the permanent hose connection of the vessel receiving the molasses at loading port’; similar clauses are typical in contracts for the sale of oil: see The Wise [1989] 2 Lloyd’s Rep 451 and also Trafigura Beheer BV v Kookmin Bank Co [2006] EWHC 1921 (Comm); [2006] 2 CLC 643 where the CIF contract stipulated that title to the oil was to pass when the cargo ‘passes the flange connection of the vessel’s intake hose at the loadport’. 37 See the FOB contract used by the North American Export Grain Association Inc, which, at clause 25, reads: ‘Anything in this contract to the contrary notwithstanding, seller shall retain title to the commodity until seller has been paid in full (per clause 11), it being understood that risk of loss shall pass to buyer on delivery at discharge end of loading spout (per clause 8)’. 38 See the 1964 version of the CIF Reselling Contract, adopted by the Timber Trade Federation of the United Kingdom, SCANREF 1964, clause 9 of which reads: ‘Property in goods to be deemed for all purposes, except retention of Vendor’s lien for unpaid purchase price, to have passed to Buyers when goods have been put on board the vessel, or if sold ‘afloat’, at the date of the contract’.

130



Contractual Terms as to the Transfer of Property

5.16

The Purpose and Range of Romalpa Clauses Clauses reserving property in the goods until payment are commonly called ‘Romalpa’ clauses, after the case Aluminium Industrie Vaassen BV  v Romalpa Aluminium Ltd39. The object of such clauses is to protect the seller against the consequences of non-payment by retaining property in the goods, thus saving them from the claims of other creditors of an insolvent buyer40. These clauses come in various shapes and sizes41, ranging from those which simply seek to retain property in the goods sold until payment to those which seek to establish title over the proceeds of their on-sale or even over products manufactured by the buyer with the goods sold by the seller. Moreover, some clauses will go so far as to seek to secure the seller through any of these means not only against the non-payment of the price under a given sale contract, but also against any other debt, past or future.

5.15

The Legal Effect of Romalpa Clauses The use of Romalpa clauses is prolific and varied42, and the efficacy of such clauses depends heavily on their construction and a number of property law fundamentals. Broadly speaking, Romalpa clauses can be divided into four types: (1) First, clauses which, on their true construction, specify that the seller retains legal title in the goods pending payment are effective at retaining property in the goods43. In those circumstances the buyer holds the goods as bailee and/or agent of the seller, and a fiduciary relationship normally arises between buyer and seller enabling the seller to follow the goods and trace the proceeds of any sub-sale44. Due to the existence of a fiduciary relationship, the seller should be able to assert an equitable proprietary

39 [1976] 1 WLR 676. In this case, property was to pass when the buyer paid ‘all that is owing to’ the seller. On Romalpa clauses generally, see Benjamin, paras 5–143 et seq. 40 Compaq Computer Ltd v Abercorn Group [1993] BCLC 603 at 611. 41 For an exhaustive sampling of various retention of title clauses, see Julie Spencer ‘The Commercial Realities of Reservation of Title Clauses’ [1989] JBL 220, particularly 225–229. 42 So much so that the interpretation and application of such clauses has been described as ‘a maze if not a minefield’: see Staughton J in Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 2 Lloyd’s Rep 422. See also Benjamin at paras 5–143 to 5–151. 43 Such clauses can reach quite far, indeed a clause seeking to reserve title not only until the price unpaid under the instant contract of sale has been settled but also for all indebtedness of the buyer to the seller has been recognised by the courts. See Armour v Thyssen [1990] 3 All ER 481. 44 Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 at 690: ‘If an agent lawfully sells his principal’s goods, he stands in a fiduciary relationship to his principal and remains accountable to his principal for those goods and their proceeds. A bailee is in like position in relation to his bailor’s goods’. See also Benjamin at para 5–143.

131

5.16

5.16

The Time When Property Passes to the Buyer interest over the funds and therefore be able to trace them into the buyer’s bank account, even if they have been placed into a mixed fund45.

(2)

Second, for clauses which, on their true construction, provide that the buyer retains equitable/beneficial title but not legal title, then legal title passes to the buyer. In such circumstances, the buyer is often taken to have created an equitable charge over those goods in favour of the seller46, but that charge must be registered by the seller with the registrar of companies within 21 days of its creation, pursuant to the Companies Act 2006 s 859H(3). Failure to do so will make the charge void on an insolvency event and therefore defeat the purpose of the Romalpa clause47. This was held to be the case in Re Bond Worth Ltd48, where the clause provided: ‘equitable and beneficial ownership shall remain with us [the seller] until full payment has been received’.

(3) Third, there are hybrid possibilities of the first two examples such that, despite a retention of title clause, it is possible that the presumed fiduciary relationship between seller and buyer will be negatived at some point by other contractual terms. An example is a term permitting the buyer to deal with the proceeds of any sub-sale for their own benefit, such as by mixing the funds in their own account and dealing with them49. In such circumstances, while the goods remain with the buyer, the legal title remains with the seller; but when the buyer on-sells the goods, the buyer likely does not do so as bailee or agent of the seller, but on their own account and at that point legal title is deemed to pass from seller to buyer to subbuyer50. This could be explained on the basis that a fiduciary would not be permitted to deal with such monies for their own account and, accordingly, the parties cannot have intended a fiduciary relationship to arise/remain. In such circumstances, the courts have held that the buyer creates a charge in favour of the seller, which would, as in the example in paragraph (2) above, require registration, failing which it will be void51. Consequently, in order to avoid this type of conclusion, it is sensible for those inserting Romalpa clauses to provide expressly that: (1) the buyer holds the proceeds of any 45 Oakley, A.J. ‘Proprietary Claims and their Priority in Insolvency’ Cambridge Law Journal. Vol. 54, No. 2 (Jul 1995), pp 377–429 at 381–382. If there was no fiduciary relationship, the position would be different and the right to trace would lie only at common law, which does not permit tracing into a mixed fund. 46 Companies Act 2006 s 859A(1), (6). 47 Re Peachdart Ltd [1984] Ch 131; Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25; Re Bond Worth Ltd [1979] 3 All ER 919; Compaq Computer Ltd v Abercorn Group [1993] BCLC 602; Modelboard Ltd v Outer Box Ltd [1993] BCLC 623. 48 Re Bond Worth Ltd [1980] Ch 228; see also Benjamin at para 5–146 and footnote 746. 49 Compaq Computer Ltd v Abercorn Group Ltd & Ors [1991] BCC 484 at 494. While equitable tracing permits the tracing into mixed funds, an express contractual right allowing the buyer to mix funds can be seen as a contractual intention not to retain legal title and therefore undermine the very fiduciary relationship that would give rise to the right to trace in equity into those funds. 50 See, for example Compaq Computer Ltd v Abercorn Group Ltd & Ors [1991] BCC 484 at 496. 51 Compaq Computer Ltd v Abercorn Group Ltd & Ors [1991] BCC 484 at 496.

132



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5.16

sub-sale in a fiduciary capacity for the seller; (2) those proceeds are kept in a separate account; and (3) those proceeds remain the property of the seller and cannot be used by the buyer. (4) Fourth, if the clause provides that the right to retake possession is expressly retained by the seller pending payment, this has been regarded as synonymous with a refusal unequivocally to dispose of the property, so that legal title remains with the seller and, again, the buyer can follow the goods and trace the proceeds of any sale52. Thus far, we have focused on tracing the proceeds of the goods. We now turn to the issue of following the goods themselves. A seller will be entitled to follow the goods as long as they are identifiable. However, if the goods are manufactured and/or incorporated into another product, and the seller has attempted to retain legal title, it is likely that this will be ineffective and the parties will likely have intended property to pass53. However, whether property has passed will ultimately depend upon the parties’ objective intentions as to whether they truly intended the seller to retain title to property so used. In circumstances where, for example, the buyer and or third parties have contributed labour and/or materials to the manufacture, it is much more likely that a court will conclude that the parties could not have intended the property to remain exclusively with the seller54. Consequently, property will pass, but a charge will likely be created in favour of the seller that must be registered pursuant to Companies Act 2006 s 859H(3). By contrast, if the goods are mixed in bulk or subsumed into a new product, there can come a point where they are deemed no longer to exist and the right to follow (and/or to trace the proceeds) appears to terminate55. Whether goods have ceased to exist can depend on numerous factors, including: (1) whether the original goods subsist in some tangible form56; and (2) whether there are any other products used in the manufacture of a new combined product. Whether goods have ceased to exist can be difficult to determine, and, in the case of bulk goods that have been commingled, despite their no longer being ascertainable, the owner can be allowed to follow into the mixed goods and suffers any diminution of the goods rateably, with the caveat that, if the goods have been wrongfully mixed, the wrongdoer is taken to have divested themselves of their own goods first if there is a shortfall57. In order to avoid the conclusion that the goods have ceased to exist, 52 McEntire v Crossley Bros Ltd [1895] AC 457; Smart Brothers Ltd v Holt [1929] 2 KB 303 at 308. See also Benjamin at para 5–147. 53 Clough Mill Ltd v Martin [1985] 1 WLR 111 at 119. 54 Re Peachdart Ltd [1984] Ch 131. See also Benjamin at para 5–151 and footnote 786. 55 Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25. 56 See, for instance, the Canadian case of Jones v De Marchant (1916) 28 DLR 561 where a wife was able to follow her fur skins into a coat her husband made for his mistress (followed in Glencore International AG  v Metro Trading Inc (No  2) [2001] 1 Lloyd’s Rep 284  at para  179 and  Foskett v McKeown [2001] 1 AC 102, pp 132 and 133). 57 Armory v Delamirie (1722) 1 Str. 505; Indian Oil Corporation Ltd v Greenstone Shipping Co SA (The Ypatianna) [1987] 2 Lloyd’s Rep 286; see also Glencore International AG and Others v Metro Trading International Inc [2001] 1 Lloyd’s Rep 284.

133

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The Time When Property Passes to the Buyer

some Romalpa clauses stipulate that, in such circumstances, the original seller will have a property right over the newly manufactured product, but in the way of a charge because the original property has passed and a new right (the charge) has arisen. Again, this would need to be registered as a charge to be effective.

TRANSFER OF PROPERTY AND BILLS OF LADING Presumptions as to Intention in the Absence of Express Terms 5.17

In the absence of terms in the contract expressly defining the moment at which property passes, it will be left to the courts to ascertain the intention of the parties in this regard. Given the central role played by the bill of lading in sale contracts concluded on shipment terms, it is not surprising that the manner in which the bill of lading is issued and the way in which it is transferred to the buyer are significant factors in discerning that intention58. The lead is given by section 19(2) itself, which reads as follows: ‘Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal.’ Three main sets of circumstances need to be considered under this section59: (a)

where the bill of lading is made out to the order of the seller;

(b)

where the bill of lading is made out to the order of the buyer; and

(c)

where the contract provides for payment ‘cash against documents’.

Rather than providing absolute rules as to the passage of property, these three sets of circumstances establish assumptions upon which decisions are arrived at by the courts. It is difficult to predict with certainty what intention the courts will infer in any particular case because that decision will depend on a wide variety of variables60. However, it is safe – and useful – to say that these assumptions are the starting points used by the courts. 58 The link between the seller’s intention to transfer a property interest and the manner in which the bill of lading was handled was recognised very early in the judicial history of bills of lading – as early as 1787 in Hibbert v Carter (1787) 1 TR 745: see Aikens at para 6.23. 59 For the sake of completeness, two other variants need to be mentioned: where payment is to be made by bill of exchange, and where payment is to be made by letter of credit. As for the first, s 19(3) of the 1979 Act lays down the rule that transfer of a bill of lading against a dishonoured bill of exchange does not pass property in the goods to the buyer. As for the second, namely where the sale contract provides for payment by letter of credit, this will be dealt with separately at paras 5.21–5.22 below. 60 Whether transfer of the bill of lading will pass a property interest in the goods to the buyer – and, if so, what property interest – will depend on the intention of the parties and ‘is always a question of fact with the answer depending on the nature of the agreement under which the transfer takes place’: see The Rafaela S [2005] 1 Lloyd’s Rep 347 at 364, per Lord Rodger.

134



Transfer of Property and Bills of Lading

5.18

Where the Bill of Lading is Made Out to the Order of the Seller Section 19(2) raises a prima facie61 presumption that the seller intends to reserve the right of disposal, where the bill of lading is made out ‘to the order’ of the seller or the seller’s agent. The presumption appears to be strong62 enough to withstand rebuttal even where the seller endorses and parts company with the bills of lading63 but is not paid; or where payment was to be effected by letter of credit64; or where the goods were shipped on a vessel owned by the buyer65. Where the presumption applies66, the property in the goods is presumed to pass not on shipment67, as it would otherwise be presumed to under Section 18 rule 5(2), but on endorsement and payment or on the occurrence of any other condition construed by the court68. On the other hand, the fact that the bill of lading is made out to the order of the seller does not necessarily preclude the passage of property on shipment in all cases. Thus, where the seller takes a bill of lading as agent of the

61 Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 at 67. 62 See Jenkyns v Brown (1849) 14 QB 496 at 502: ‘the taking of a bill of lading deliverable to [the seller’s] order is nearly conclusive evidence that [property] did not pass’. Cf, for the view that the presumption is ‘somewhat weak, and may be rebutted by other circumstances of the case’, see The Parchim [1918] AC 157, 170–1 and Bridge at para 7.39. 63 See P S Chellaram & Co Ltd v China Ocean Shipping Co [1989] 1 Lloyd’s Rep 413, at 421–2, per Carruthers J, New South Wales, Admiralty Division. 64 See The Filiatra Legacy [1991] 2 Lloyd’s Rep 337 at 342 and Mitsui & Co Ltd and another v Flota Mercante Grancolombiana SA, The Cuidad de Pasto, The Cuidad de Neiva [1989] 1 All ER 951. 65 Turner v Trustees of the Liverpool Docks (1851) 6 Exch at 543, but see Ogle v Atkinson (1814) 5 Taunton 759. 66 Before the Court of Appeal’s decision in Mitsui & Co Ltd and another v Flota Mercante Grancolombiana SA, The Cuidad de Pasto, The Cuidad de Neiva [1989] 1 All ER 951, there appeared to be some doubt as to whether the presumption in s 19(2) could apply to FOB sales. See Benjamin, para 20–084; Goode Commercial Law at para 34.14; and Carver on Bills of Lading at para 6.053. The point was settled in the Court of Appeal in The Cuidad de Pasto [1989] 1 All ER 951, see particularly 956a–e, 959g, 960a; see also Concordia Trading BV v Richco International Ltd [1991] 1 Lloyd’s Rep 475. 67 See, however, Biddell Brothers v E Clemens Horst Company [1911] 1 KB 934 at 956, where Kennedy LJ (dissenting, but upheld on the main point in issue: was payment due on tender of documents?) suggests, citing Mirabita v Imperial Ottoman Bank (1878) 3 Ex D 164, that property does pass on shipment ‘conditionally where the bill of lading for the goods, for the purpose of better securing payment of the price, is made out in favour of the vendor or his agent or representative’. With respect, the effect of s 19(2) is to raise a presumption that property does not pass on shipment rather than that property passes conditionally. Carver on Bills of Lading concedes only, at para 6.056, that property passes on shipment in the circumstances envisaged by Kennedy LJ ‘only where the seller has not reserved the right of disposal’. Aikens suggests, at para 6.27, footnote 54 that Kennedy LJ’s view on this matter ‘must be viewed with considerable suspicion and does not represent the prevailing view’. 68 Thus, in The Albazero, Brandon J held that the plaintiff sellers, a company closely associated with the buyers, intended to reserve title in a cargo of oil not until payment, but until the bill of lading was posted to the buyers: see [1977] AC 774, at 796–799 per Brandon J, at 809–11 per Roskill LJ, and at 840 per Lord Diplock. Both Brandon J and the Court of Appeal were reversed by the House of Lords, but not on the question as to passage of property.

135

5.18

5.19

The Time When Property Passes to the Buyer

buyer69, or where the bill of lading is made available to the buyer70, property may pass on shipment notwithstanding the fact that the bill has been made out to the seller’s order.

Where the Bill of Lading is Made Out to the Order of the Buyer 5.19

The fact that the bill of lading is made out to the buyer’s order raises no presumption regarding the passage of property71: the impact upon the transfer of property of a bill of lading being made out to buyer’s order will consequently depend on the facts as a whole. Thus, where the seller took a bill of lading made out to the buyer’s order, but retained possession of it until payment, it was held that property did not pass on shipment of the goods but on transfer of the bill of lading72. It is on this sort of authority that it is sometimes said that property usually passes on delivery of the documents to the buyer73. Accordingly, while it might ostensibly appear to follow from section 19(2) of the 1979 Act that, where the bill of lading is made out to the buyer’s order, this would indicate that the parties intended property to pass on shipment as is envisaged by section 18, rule 5(2), there is, however, strong authority, both by way of ratio decidendi74 and by way of obiter dicta75, against rushing towards any such conclusion.

Where the Contract Provides for Payment ‘Cash Against Documents’, the Property Passes on Payment 5.20

Where the sale contract provides for payment ‘cash against documents’, this is taken to be the clearest sign that the parties intend the property in the goods to 69 See Joyce v Swann (1864) 17 CB NS 84. 70 See Browne v Hare (1858) 3 H & N 484, (1859) 4 H & N 822, discussed by Benjamin at para 20–085, and The Parchim [1918] AC 157 and The Kronprinsessan Margareta, The Parana [1921] 1 AC 486. 71 See Benjamin at para 20–90 and The Seven Pioneer [2001] 2 Lloyd’s Rep 57 at 62 (NZ). 72 See The Kronprinsessan Margareta, The Parana [1921] AC 486, at 511–7, particularly at 515, where Lord Sumner said: ‘Certainly no case was found, in which it was held that taking the bill of lading in the buyer’s name, while witholding delivery of it until presentation and taking up of the documents, would not be, as an appropriation … conditional’. See also Sheridan v New Quay Co 140 ER 1234, where property was held to pass on transfer of the bill of lading in a case where payment was to be in cash against the bill of lading, and this despite the fact that the bill was taken for the buyer’s order. 73 See Benjamin, para  19–103 and H  Goitein ‘The Passing of Property and the Risk under a CIF Contract’ (1947) 43 LQR 81 at 84. It is possible that, even where the bill of lading is made out to the buyer, and where the bill of lading and the goods have been passed to the buyer, a court might hold that the intention of the parties is that the seller reserves title to the goods until payment of the price: see The Aliakmon [1986] 2 Lloyd’s Rep 1 at 4. The crucial circumstance leading to that decision was that the parties had agreed, by way of a new contract, that the buyers were to take delivery of the goods as agents of the sellers. 74 See The Kronprinsessan Margarita, The Parana [1921] 1 AC 486. 75 See, for example, Arnhold Karberg & Co v Blythe Green Jourdain & Co [1915] 2 KB 379 at 387, per Scrutton J; The Julia [1949] AC 293 at 309, per Lord Porter; and The Lycaon [1983] 2 Lloyd’s Rep 548 at 554, per Lloyd J.

136



Transfer of Property and Letters of Credit

5.21

pass on payment of the price76. The presumption raised by such a term is so strong that it survives even the physical delivery of the goods to the buyer before the bill of lading reaches the discharge port. Thus, where the seller took a bill of lading to their order under a contract stipulating for payment against documents, and where the seller then tendered a ship’s delivery order to the buyer entitling the buyer to take possession of the goods from the carrier, it was held that the delivery of the goods to the buyer did not disturb the presumption that the property was to pass on payment of the price77.

TRANSFER OF PROPERTY AND LETTERS OF CREDIT The Bank and Property Where a bill of lading is tendered to and accepted by a bank under a letter of credit, the bank receives a pledgee’s interest in the goods but a bank interested in securing itself against non-payment by the buyer would, at any rate since COGSA 1992, be more interested in whether, and if so how, it appeared on the bill of lading78. Neither the pledge nor the naming of the bank as a consignee or its status as an endorsee would pass property in the goods to the bank. Indeed, if, as we saw earlier79, a bank is not, in the normal course of events, to have much interest in taking delivery of the goods, nor is it, again in the normal course of events, likely to be interested in owning them. The creation of the pledge and the possible naming of the bank on the bill of lading have far more to do with a contingent right to the possession and sale of the goods than with their ownership. 76 See The Miramichi [1915] P 71 at 78, where the term agreed was ‘by check against documents’; In re an Arbitration between Shipton, Anderson & Co and Harrison Bros & Co [1915] 3 KB 676 at 680; Stein, Forbes & Co v County Tailoring [1917] 86 LJKB 448; and Eastwood & Holt v Studer (1926) 31 Com Cas 251; and see generally Carver on Bills of Lading at para 6.063. 77 Ginzberg and Others v Barrow Haematite Steel Company, Ltd and McKellar [1966] 1 Lloyd’s Rep 343. On the other hand, the presumption was disturbed where a contract which provided for payment in cash against a mate’s receipt also expressly provided that the seller was to have a lien on the goods until payment of the price: see Nippon Yusen Kaisha v Ramjiban Serowgee [1938] AC 429, particularly at 444, where Lord Wright based the opinion of the Privy Council that property passed before payment on the view that, as the seller could only have a lien over someone else’s property, this must mean that property in the goods had passed on delivery free alongside, despite the term ‘cash against documents’. It is difficult to accommodate this judgment into SOGA 1979 which at ss 38–43 implies a lien in favour of the unpaid seller into all contracts of sale: as such a lien is automatically implied by statute, does this mean that a term providing for payment ‘cash against documents’ does not reserve title to the seller? The opinion of the Privy Council appears to have been followed by no other English court, and the editors of Benjamin are forced to say of it ‘only … that the passing of property is a question of intention in each case’: see para 18–263; see also Carver on Bills of Lading at para 6.057. See also FE Napier v Dexters Ltd (1926) 26 Ll L Rep 62 and 184, where property was held to have passed before payment of the price in a contract stipulating for payment in cash against mate’s receipt: the passage of property was a question of fact decided by the arbitrator, whose judgment neither Roche J nor the Court of Appeal wished to disturb: see particularly (1926) Ll L Rep 184 at 189, per Scrutton LJ. 78 See paras 2.62–2.65 above. 79 See para 2.61 above.

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5.21

5.22

The Time When Property Passes to the Buyer

Naming the Bank as Consignee: its Impact on Transfer of Property to Buyer 5.22

To say that a bank opening or confirming a letter of credit is unlikely to be primarily interested in owning the goods does not, however, mean that the manner in which the banks insist the bill of lading is made out or endorsed has nothing to tell us about the transfer of property between seller and buyer. While it has been said that: ‘[t]he special circumstance of the existence of a confirmed banker’s credit in this case is only indirectly relevant’80 to the transfer of property, it has been suggested that the use of letters of credit in international trade explains and justifies the readiness with which the courts will find that the seller has retained title under the contract of sale beyond the time of shipment and postponed it to the time of payment under the letter of credit. The argument runs as follows: if the seller were to pass property in the goods to the buyer on shipment, then all they would have to pledge to the bank is their lien while the goods are still in their possession and their right of stoppage in transit once the goods are on their way to the buyer; no bank would take this to be a realistic security and it should follow, therefore, that the seller is more likely than not to have reserved title beyond shipment where a letter of credit is in place81. The result is not that property is deemed to pass to the bank, but that the parties intend to indicate that transfer of property is to be reserved until payment, by agreeing on payment by letter of credit or on tender of bills of lading made out to or endorsed to one of the banks involved.

80 The Kronprinsessan Margareta, The Parana [1921] 1 AC 486, at 517. See also Benjamin, para 18–269: ‘the issue of a letter of credit is relevant, but not decisive, to the seller’s intention to transfer property’. 81 See Benjamin at para 18–270, where the argument is based on the authority of a dictum by Lord Wright in Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 at 68.

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Chapter 6

The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped THE ROLE OF THE BILL OF LADING AS A RECEIPT IS RELEVANT TO BOTH THE CARRIAGE CONTRACT AND THE SALE CONTRACT 6.1 THE ROLE OF THE BILL OF LADING AS A RECEIPT IS RELEVANT TO LETTERS OF CREDIT 6.3 THE BILL’S FUNCTION AS A RECEIPT IS CONCLUSIVE PROOF OF CERTAIN MATTERS 6.4 BUYERS’ AND SELLERS’ RIGHTS TO DEMAND A CLEAR RECEIPT FROM THE CARRIER 6.9 (a) The Seller’s Rights Under the Carriage Contract to a Receipt 6.9 (i) The Seller has no Right to a Clear Receipt at Common Law 6.10 (ii) The Seller has a Right to a Clear Receipt Where COGSA 1971 Applies6.11 (iii) The Carrier’s Position: the Proviso in Article III.3 Provides an Apparent Escape Route for the Carrier 6.12 (iv) The Carrier has a Right to an Indemnity Under Article III.5 Against the Seller/Shipper for Inaccurate Information 6.13 (b) The Buyer’s Rights to a Receipt Under the Carriage Contract 6.15 (i) The Buyer has no Right Against a Carrier for a Clear Receipt at Common Law 6.15 (i) The Buyer has no Right to a Clear Receipt Under COGSA 1971 6.16 THE BILL OF LADING MUST SAY CERTAIN THINGS ABOUT THE GOODS FOR IT TO BE GOOD TENDER UNDER SALE CONTRACTS AND LETTERS OF CREDIT 6.17 (a) The Bill of Lading Must Cover Contract Goods and no Others 6.18 (i) The Sale Contract Requires the Bill of Lading to be for the Contract Quantity6.18 (ii) How Many Bills of Lading, for how Many Quantities and for how Many Cargoes? 6.20 (iii) Carrier’s Qualifications on the Statement as to Quantity 6.23 (b) The Bill of Lading Must be ‘Clean’ for Tender to be Valid Under a Sale Contract or Letter of Credit 6.28 (c) ‘Certificate Final’ Clauses can Provide Binding Evidence of the State of the Goods on Shipment 6.31 139

6.1 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped

THE ROLE OF THE BILL OF LADING AS A RECEIPT IS RELEVANT TO BOTH THE CARRIAGE CONTRACT AND THE SALE CONTRACT 6.1

A buyer who wants to claim from a carrier and who is in possession of damaged or short-delivered goods, or holds a bill of lading representing lost goods, needs: (1)

to prove that the carrier has in fact delivered goods in a smaller quantity, or in a worse apparent condition, than that in which they were shipped; and

(2)

to be clear about the contractual regime, if any, regulating their cause of action against the carrier.

Both these issues form the substance of two functions of bills of lading other than those covered in Chapters 2, 3 and 4. They are that the bills function: (1)

as a receipt proving delivery of the goods by the seller to the carrier; and

(2)

as evidence of the contract of carriage1.

These two functions are also relevant from the point of view of the sale contract to which the buyer and seller (but not the carrier) are parties. The seller expects to be paid the price on tender of the shipping documents to the buyer or to the confirming bank and is, therefore, unlikely to be too particular about the precise contents of the bill of lading if this will delay the moment of issue of the bill and consequently the time of tender and payment. The seller also, at any rate where the sale is on CIF or C&F terms, classic FOB terms, or on FOB terms with additional services2, is the party who, of the two parties to the sale contract3, has the greater degree of control over the tenor and contents of the bills of lading actually issued. The buyer (rather than the seller), however, is likely to be the one to sue a carrier under the contract of carriage on the basis of statements contained in that receipt. Thus, the party with the right to make demands of the carrier with regard to the contents of the bill of lading – the seller – has little obvious incentive to do so; while the party with the incentive, the buyer, appears to have no right to make such demands when the carrier issues the bill to the seller, because the buyer is not at that time party to any contract with the carrier. 6.2

In these circumstances, the buyer has an interest in how the seller exercises whatever control the seller has over the type of bill of lading issued by the carrier. 1 2 3

See, for example, Cooke Voyage Charters, paras 18.7–18.39 as to the receipt function, and paras 18.45–18.137 as to the role of the bill as evidence of the contract of carriage; likewise, Carver on Bills of Lading at paras 2.001–2.055 and 3.001–3.043. Where the sale is on straight FOB terms, the seller will have nothing to do with the issue of the bill and will, therefore, be in no position to exercise any control over the form in which it is issued. See, generally, paras 1.13–1.23. The bill is, of course, the carrier’s document and, as we shall see, it is the carrier who has ultimate control over what it says on issue about the goods and about the terms of the contract of carriage.

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The Role of the Bill of Lading as a Receipt is Relevant to Letters of Credit

6.3

To address this concern, the sale contract will frequently contain terms describing the bill of lading which the seller must, in performance of their duties under the sale contract, take from the carrier, in exercise of the seller’s rights under the contract of carriage – and then transfer to the buyer. These terms in the sale contract give the seller the incentive to ensure that the bill issued to the seller by the carrier for transfer to the buyer complies with such requirements as the buyer has made clear to the seller in the sale contract. Thus, for example, where Incoterms 2020 forms part of a contract on CIF terms, the seller must tender a bill of lading: (1)

which is ‘clean’ (we explain what this means later in the chapter);

(2)

which relates to/covers the contract goods; and

(3)

which is made out for the agreed port of destination4.

The first two of these obligations relate to the function of the bill of lading as a receipt and will be discussed in this chapter; the second duty – to tender a bill of lading made out for the destination in the sale contract – raises questions relating to the contractual role of the bill of lading and will be discussed in the next chapter.

THE ROLE OF THE BILL OF LADING AS A RECEIPT IS RELEVANT TO LETTERS OF CREDIT The receipt and contract functions of a bill of lading are also linked to any letter of credit if the parties have chosen this mechanism as the method of payment. This is because letters of credit often (and the UCP 600 do) contain stipulations about what a bill of lading must (and must not) say, just as sale contracts do. Thus, for example, a confirming bank will look to see whether a bill tendered by a seller is clean5 and/or shipped6; and/or the terms in which the bill allows transhipment7.

4

5 6 7

Standard form contracts too, like GAFTA form 100, may contain stipulations, in greater or less detail than Incoterms 2020, relating to the bill of lading to be tendered by the seller to the buyer. Thus in clause 11, GAFTA 100 binds the seller to tender ‘[F]ull set(s) of on board Bill(s) of Lading and/or Ship’s Delivery Order(s) and/or other Delivery Orders in negotiable and transferable form. Such other Delivery Order(s) if required by Buyers, to be countersigned by the Shipowners, their Agents or a recognized bank’. Where the sale contract contains no express term about the bill of lading, SOGA 1979 s 32(2) imposes upon the seller the duty to ‘make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and other circumstances of the case’. See UCP 600 art 27. See UCP 600 arts 20(a)(ii), 21(a)(ii), 22(a)(ii); cf arts 19(a)(ii) and 23(a)(ii). See UCP 600 arts 20(b), (c) and (d), 21(b), (c) and (d) and 19(b) and (c).

141

6.3

6.4 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped

THE BILL’S FUNCTION AS A RECEIPT IS CONCLUSIVE PROOF OF CERTAIN MATTERS A Bill is Conclusive Evidence of Identity, Quantity and Apparent Condition of the Goods Under COGSA 1971 6.4

COGSA 1971 introduced8 a ban on evidence contradicting statements on the bill as to the identity, quantity and apparent condition of the goods on shipment, where the bill has been transferred to a third party acting in good faith9, eg the buyer. This is crucial in protecting buyers who would otherwise suffer from an evidential handicap of having little or no way of proving what was in fact shipped and in what condition, when that operation often happens in a different country thousands of miles away by the seller and carrier. If a claimant alleges that the carrier has not delivered what was shipped, two facts need to be established by the claimant: (1) what cargo was shipped; and (2) what cargo was delivered. The claimant is likely to be the buyer10, who will have acquired title to sue the carrier on the contract of carriage through the operation of COGSA 1992 or through the implication of a contract under the rule in Brandt v Liverpool11. As receiver of the goods, the buyer is well placed to prove what was delivered. However, the buyer would ordinarily find it rather more difficult to prove what was shipped, loading having taken place in a foreign port in an operation over which they are unlikely to have exercised any supervision. The buyer is assisted in this regard by the bill of lading, which carries on its face statements as to the quantity and apparent condition of the goods on shipment. These statements, made or at any rate adopted12 by the carrier, are conclusive proof of the quantity and apparent condition of the goods in the hands of the buyer. 8

In article III.4 of the Schedule to that Act, the relevant part of which reads: ‘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’. This article was commonly said to have done away with the rule in Grant v Norway (1851) 20 LJCP 93 in actions for short-delivery brought against the carrier by the buyer of the goods: see Scrutton, p 391; but see fn 13 below. 9 The good faith requirement would appear to be satisfied so long as the transferee did not have ‘actual notice at the time of receiving the bill that the goods shipped did not correspond with the bill of lading statement’: see Anthony Diamond QC, ‘The Hague-Visby Rules’ [1978] LMCLQ 225 at 253. 10 On transfer of the bill of lading to the buyer, the seller loses their title to sue the carrier on the contract of carriage (see COGSA  1992 s  2(5)) unless the seller’s contract of carriage is contained in a charterparty rather than a bill of lading (see COGSA 1992 s 5(1)(a)). Where the relevant document is a sea waybill, including a straight bill of lading or a ship’s delivery order, the seller does not lose their contractual title to sue the carrier on the terms contained therein (see COGSA 1992 s 2(5)). 11 [1924] 1 KB 575. 12 The statements describing the quantity and apparent condition of the goods are frequently completed on the bill of lading by the shipper. On signing the bill, though, the carrier makes these statements their own. See, in this regard, The David Agmashenebeli [2003] 1 Lloyd’s Rep 92 at 103;

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The Bill’s Function as a Receipt is Conclusive Proof of Certain Matters

6.5

A Bill is Conclusive Evidence of Shipment, or Receipt for Shipment, of the Goods Under COGSA 1992 A similar ban was imposed by COGSA 1992 s 4, which made a bill of lading in the hands of a lawful holder conclusive as to the shipment or receipt for shipment of the goods. It may seem strange that section 4, a section dealing with the role of the bill of lading as a receipt, was included at all in COGSA 1992, an Act primarily intended to transfer contractual rights of suit against the carrier from seller to buyer. The stated purpose13 of such inclusion was to deal with the technical possibility that, where no goods had been shipped at all, a third party to whom the bill of lading had been transferred could not take advantage of the estoppel established by the Hague-Visby Rules art III.4, there being no contract of carriage because no goods had been shipped14. Another desirable, though possibly unintended, effect of section 4, is that a charterer who has bought goods FOB now enjoys the benefits of an estoppel under that section in the same way that a CIF buyer has the benefit of an estoppel under the Hague-Visby Rules art III.4. In such circumstances, the contract of carriage between the charterer and the shipowner is contained in the charterparty rather than the bill of lading15 and the Hague-Visby Rules do not apply to that contract unless they are expressly incorporated into the charterparty16. Where the Rules are not incorporated but the charterparty is governed by English law, COGSA 1992 art III.4 makes the bill of lading conclusive of the shipment of the goods in the hands of the charterer, the lawful holder of the bill17.

13 14

15 16 17

see also Breffka & Hehnke GmbH & Co KG and Others v Navire Shipping Co Ltd and Others (The Saga Explorer) [2013] 1 Lloyd’s Rep 401 at 406. See Law Comm No 196 at paras 4.6 and 4.7. See Benjamin (3rd edn), para  1440 and (4th edn), para  18–012. The argument ran as follows: as the estoppel only works against a ‘carrier’, and as a ‘carrier’ is defined in article I(a) of the Hague-Visby Rules as a shipowner or charterer ‘who enters into a contract of carriage with a shipper’, a carrier who is not a party to such a contract (because no goods have been shipped) is not caught by art III.4; consequently, it was still open for the shipowner whose master had issued a bill of lading to prove, under the rule in Grant v Norway (1851) 20 LJCP 93, that no goods had been shipped. The current edition of Benjamin argues that the technical possibility still exists that a buyer may be faced with a similar argument, unless COGSA  1992 s  4 were treated as an exception to the normal rule that estoppel does not give rise to a cause of action: see paras 18.030, 18.036 and 18.037. Whatever the merits of this technical possibility, and the consequent suggested suspension of the normal rules of estoppel, it is suggested with respect that the judicial distaste felt for Grant v Norway makes it extremely unlikely that the case will enjoy a judicial revival: see The Nea Tyhi [1982] 1 Lloyd’s Rep 606 (disapproved of, though on an unrelated point, by Lord Brandon in The Aliakmon [1986] 2 Lloyd’s Rep 1) and The Saudi Crown [1986] 1 Lloyd’s Rep 261. If this is right, COGSA 1992 s 4 is something of a solution in search of a problem, but see text following above. Rodocanachi v Milburn (1886) 18 QBD 67 and see Chapter 8 below. See art I(b) and V of the Hague-Visby Rules. There is nothing in the definition of ‘lawful holder of the bill’ in COGSA 1992 s 5 which clearly excludes the holder of a bill who also happens to be a charterer.

143

6.5

6.6 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped

The Need for an Unqualified Statement: The First Requirement for Estoppel 6.6

The matter does not end there, however. The legal device used to make statements binding by barring evidence contradicting them is the device of representational estoppel. That device18 cannot be sustained unless there is a clear and unequivocal statement by the carrier founding the estoppel19. Accordingly, if the bill of lading contains a statement about the quantity and condition of the goods on shipment, but the statement is so qualified that it hardly amounts to a statement about shipment at all, the representation (and any consequently estoppel) never arises. The upshot of the requirement for a clear and unequivocal representation is that, where the statement is equivocal, as it would be where it specifies the weight of goods but then is qualified by a ‘weight unknown’ clause20, the bill does not even provide prima facie evidence against the carrier, neither of the quantity shipped nor of the apparent condition of the goods at the time of shipment21. There would 18 Whether operating in its common law (see Compania Naviera Vasconzada v Churchill & Sim [1906] 1 KB 237) or its statutory (see COGSA 1971 Sch art III.4 or COGSA 1992 s 4) manifestations. The common law and statutory estoppels differ only slightly, in that the first requires the buyer to prove that they acted to their prejudice upon the faith of the statement on which the estoppel is based; in the second, the buyer need not prove action in reliance. There is less to this distinction than meets the eye, because the courts will take the buyer’s burden of proof as discharged by the suggestion that the buyer accepted tender of the bill by the seller on the faith of the statements made therein by the carrier: Silver v Ocean Steamship Co Ltd [1930] 1 KB 416 at 428, 434 and 441: but see Scrutton, whose editors suggest at p 391 that ‘the transferee is in a substantially stronger position under the Amended Rules [ie  the Hague-Visby Rules], than he would be at common law’; in a similar sense, Carver on Bills of Lading at paras 2.031–2.034. It seems that the carrier cannot defeat the estoppel by pleading that the receiver was bound, as buyer under the contract of sale, to accept the documents and that, therefore, the receiver cannot have accepted the bill on the faith of the carrier’s representation: see Peter Cremer, Westfaelische Central Genossenschaft GmbH and Intergraan NV v General Carriers SA [1973] 2 Lloyd’s Rep 366 at 372–375, particularly at 374: and see Carver on Bills of Lading, at para 2.033. As to the application of representational estoppel generally in this context, see Carver on Bills of Lading, paras 2.009–2.011. 19 See Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741; and other cases cited in Spencer Bower and Turner, The Law Relating to Estoppel by Representation (London, 1977), at p 82; see now Spencer Bower, The Law Relating to Estoppel by Representation (LexisNexis Butterworths, 2003), p 76 para IV.2.1. 20 Qualifications of the statements about the goods come in various forms, ranging from the most obvious, eg  ‘100 tons of sugar but “weight unknown”’, through ‘10 boxes each said to contain 5 personal computers’, to the least obvious, eg  ‘particulars furnished by the shipper’. All three forms of words qualifying what would otherwise be firm statements on the face of bills of lading are treated as interchangeable: see Anthony Diamond QC, ‘The Hague-Visby Rules’ [1978] LMCLQ 225 at 254. For a judicial expression of doubt, however, as to whether the qualification ‘said to be’ does have the same debilitating effect on a representation as to the quantity of goods shipped as a ‘weight and quantity unknown’ clause, see Evans J  in The Boukadoura [1989] 1 Lloyd’s Rep 393, at 399. 21 So far as concerns quantity, see New Chinese Antimony Co Ltd v Ocean Steamship Co Ltd [1917] 2 KB 664; The Atlas [1996] 1 Lloyd’s Rep 642, particularly at 646; and The Mata K [1998] 2 Lloyds 614, cited with approval in Australia in El Greco (Australia) v Mediterranean Shipping [2004] 2 Lloyd’s Rep 537, especially paras 250 and 266. There does, however, appear to be some judicial hostility to such clauses: see The Herroe and the Askoe [1986] 2 Lloyd’s Rep 281, where it was held that a separate signature by the master next to the statement of quantity had the effect of restoring the strength of that statement, thus bypassing the ‘weight and quantity unknown’ clause; and The

144



The Bill’s Function as a Receipt is Conclusive Proof of Certain Matters

6.8

then be no need for the carrier to prove that the representations in the bill of lading were wrong, since the representations have been qualified out of existence ab initio. Consequently, it may seem initially to follow that buyers need seek no further rights under the law of sale to extract from their sellers bills of lading firmly binding the carrier to their statements therein: once the law of carriage so heavily favours the receiver of goods, the receiver has little need of further stipulation or regulation in their favour under the contract of sale or the letter of credit. However, such a conclusion would be misleading, given the carrier’s ability to neuter any representation at the outset and any subsequent estoppel argument.

The Buyer’s Real Position: Carriers can Qualify Statements in the Bill of Lading so That no Representation (or Estoppel) Arises Somewhat surprisingly, the carrier is under no automatic duty to issue a bill of lading at all, never mind one saying anything about the shipment of the goods22; and, somewhat less surprisingly, although carriers in fact do, as a matter of daily routine, issue bills of lading after shipment, the statements contained therein about the quantity and apparent condition of the goods on shipment are often so qualified that, by the time the bill is transferred to a third party acting in good faith, namely the buyer, the evidence it provides is conclusive of very little indeed23.

6.7

For these reasons, the buyer’s position as a claimant-receiver in a cargo claim against the carrier is not so strong as might appear at first sight under the law of carriage and the buyer may need to take precautions as a buyer under the sale contract and in the letter of credit in order to strengthen their position in a potential subsequent cargo claim against the carrier should such a claim eventually become necessary. The form which those precautions might take will be discussed in the third part of this chapter.

Possible Actions Against the Signatory of the Bill A buyer would normally be more interested in pursuing a cargo claim for breach of contract against the carrier, rather than against the actual signatory of the Sirina [1988] 2 Lloyd’s Rep 613, where Phillips J suggested that there must be a limit to the effect of the Court of Appeal’s judgment in the New Chinese Antimony case (see particularly p 615 of the report). As for apparent condition, see Canadian & Dominion Sugar Co Ltd v Canadian National (West Indies) Steamships Ltd [1947] AC 46; and Tokio Marine & Fire Insurance Company Ltd v Retla Steamship Company (US Ct of Apps) [1970] 2 Lloyd’s Rep 91. See Carver on Bills of Lading, at paras 2.002–2.003 and 2.019–2.020; and, generally, for a historical and comparative survey of the legal strength of statements on bills of lading, see ‘History and Development of the Bill of Lading’, D E Murray, 37 Univ of Miami LR 689 (1983). 22 See para 6.11 below. 23 See para 6.15 below.

145

6.8

6.8 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped bill of lading, for both commercial and legal reasons. The carrier will, in most cases, be the more commercially viable of the two possible defendants and, in any case, as we have just seen, an action brought in contract against the carrier will bring with it the benefit of an estoppel in the receiver’s favour (assuming that a representation arises in the first place). However, the buyer’s remedy against the carrier may equally be thwarted by commercial or legal circumstances: the carrier may be protected by contractual exclusions, time-bars or limitations; and in any event, there may be circumstances where the signatory on the bill, say a local ship’s agent, has assets which are more accessible to the claimant than does the carrier. In such situations, the receiver might wish to consider two possible avenues of redress against the signatory of the bill of lading: (1)

breach of warranty of authority; and

(2)

the torts of fraudulent or negligent mis-statement.

With each, there are, however, significant legal hurdles. The first, breach by the signatory of their warranty of authority to sign on behalf of the carrier, was used in V/O Rasnoimport v Guthrie & Co Ltd24 by Mocatta J to allow recovery for shortdelivery by an endorsee against the signatory of the bill. In doing so, the judge came perilously close to using representational estoppel as a cause of action25, despite it being a long-recognised principle of English law that proprietary estoppel is the only form of estoppel that can form the basis of a cause of action. The second, actions for fraudulent or negligent misstatement, require proof by the buyer of the defendant signatory’s fraud or negligence26 and this burden may be difficult for the buyer to discharge. Consequently, the buyer will normally be better advised to pursue their cargo claim against the carrier and their evidential position there will depend, as we have seen, on what the bill of lading says about the goods and on how clearly it says it. How clear such statements are will depend in turn on what rights the shipper has – and on what rights they have exercised – as against the carrier in demanding the issue of a bill of lading and in what state.

24 [1966] 1 Lloyd’s Rep 1. 25 See Debattista ‘The Bill of Lading as a Receipt – Missing Oil in Unknown Quantities’ [1986]  LMCLQ  468 at 472–3. The reasoning in the judgment has been called ‘complex’ and ‘artificial’ by Reynolds at (1967) 83 LQR 189. 26 Misrepresentation Act 1967 s 2(1), which would place the burden of disproving negligence on the defendant, would not be available because, ex hypothesi, the claimant here would not have ‘entered into a contract’ as required by the terms of that section. See also Carver on Bills of Lading, para 2.046.

146



Buyers’ and Sellers’ Rights to Demand a Clear Receipt From the Carrier

6.11

BUYERS’ AND SELLERS’ RIGHTS TO DEMAND A CLEAR RECEIPT FROM THE CARRIER (a)  The Seller’s Rights Under the Carriage Contract to a Receipt Common Law and Statutory Rights This section deals with the rights of the seller and buyer, at common law and under COGSA 1971, regarding the type of bill of lading that they can demand from the carrier. (This discussion is restricted to scenarios where the shipper is not also the charterer; the latter situation is discussed in Chapter 8.)

6.9

(i)  The Seller has no Right to a Clear Receipt at Common Law At common law, there is no authority granting the seller as shipper of the goods a right to a document stating that the goods have been shipped in a stated quantity and condition, at any rate in the absence of any express right in the contract of carriage27. The shipper may well need such a document so as to perform their documentary obligations under the sale contract, but it does not follow from that need that a right to such a document can be implied into a contract of carriage. Neither does it follow, from the fact that carriers actually do issue bills of lading describing the goods shipped, that the shipper has a right to a bill of lading describing the goods in any particular way. Thus, at common law at least, the carrier is under no obligation to issue a bill of lading at all and, where they do so, they have an unrestricted right to qualify statements on the bill as to make the document prima facie evidence of virtually nothing at all.

6.10

(ii)  The Seller has a Right to a Clear Receipt Where COGSA 1971 Applies The Hague-Visby Rules, incorporated into English law as a schedule to COGSA 197128, altered the position in the shipper’s favour, at any rate in theory, where the Act applies29. The Act deals largely with the contractual aspects of 27 Colman J was reluctant to place on the carrier a duty to issue an unqualified bill of lading either through tort or through the implication of a contractual term in The David Agmashenebeli [2003] 1 Lloyd’s Rep 92 at 105–6, at any rate where the bill of lading was governed by the Hague-Visby Rules. Where the Rules did not apply, the Court of Appeal in Arctic Trader [1996] 2 Lloyd’s Rep 449 declined to imply such a term against the carrier: but see Parker, ‘Liability for incorrectly clausing bills of lading’ [2003] LMCLQ 201, particularly at 229–242. 28 And, before them, the Hague Rules, incorporated via COGSA 1924, which, on the point discussed here in the text, did not differ from the Hague-Visby Rules. 29 The applicability or otherwise of COGSA 1971 is a question containing its own particular brand of intriguing difficulty, which lies, however, strictly outside the confines of this book. The main sections of the Act attracting controversy in this context are section 1 of the Act and arts I, V and X of the Schedule to the Act. For discussions in the literature, see Carver on Bills of Lading,

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6.11

6.11 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped bills of lading, but it contains also a small number of articles which relate to the receipt function of bills of lading30. Among that number, the articles of more direct relevance here are articles III.3 and III.5: these articles define the rights and liabilities of the shipper with regard to the type of receipt the shipper can expect to receive from the carrier, and it is those rights and liabilities which are under discussion here. Article III.3 reads as follows: ‘After receiving the goods into his charge the carrier or the master or the agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things– (a)

The leading marks necessary for the identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage.

(b)

Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper.

(c) The apparent order and condition of the goods. Provided that no carrier, master or agent of the carrier shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has no reasonable means of checking.’ Thus, where the Act applies, the shipper has the right to demand31 of the carrier a bill of lading clearly stating the marks, quantity and condition of the goods paras 9.072–9.098 and Aikens, paras 10.20–10.61; and Diamond, ‘The Hague-Visby Rules’ [1978] LMCLQ 225 at 256–263. 30 These are: article III.3, which lists a number of requirements on which the shipper may insist when the bill is issued; article III.4, which defines the evidential strength of the statements as to shipment carried on the bill; article III.5, which imposes liability on the shipper for inaccuracies in identifying marks and figures given to the carrier by the shipper; and article III.7, which gives the shipper the right to demand from the carrier a ‘shipped’ as opposed to a ‘received for shipment’ bill of lading. Article III.4 has already been referred to in the first part of this chapter when we dealt with the evidential role of the bill of lading as a receipt. 31 It is interesting to note that again, despite the intervention of statute, the carrier is not automatically placed under a duty to issue a bill of lading at all, much less one stating clearly the quantity and condition of the goods on shipment: see Canadian and Dominion Sugar Co Ltd v Canadian National (West Indies) Steamships Ltd [1947] AC 46 at 57. A bold attempt was made by Mr N D Shaffer in ‘Bills of Lading – Weight Unknown’ [1965] SLT 49, to argue that, after the decision of the Privy Council in Attorney-General of Ceylon v Scindia Steam Navigation Co Ltd [1962] AC 60, ‘for all practical purposes the words “on demand of the shipper” at the commencement of the Rule may be disregarded’, such that, where the Rules apply, the carrier would be under an automatic duty to issue a bill complying with article III.3. That proposition, however welcome to cargo-interests,

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6.12

when the carrier takes charge of them. (This is in contrast to the position at common law.) The real benefit of the right created by this article is the right to ask for a bill which does not qualify the statements about the goods on delivery to the carrier. Thus, where, for example, the bill of lading qualifies a statement that ‘100 tons of sugar’ have been shipped by a clause saying that the ‘weight, measure, marks, numbers, quality, contents and value [are] unknown’32, the shipper can, if covered by COGSA 1971, demand the deletion of the word ‘weight’ in that clause, such that the statement that 100 tons of sugar have been shipped stands without qualification33. Similarly, where a bill of lading qualified the statement that goods were shipped in apparent good order and condition with words which no reasonably observant master would have inserted, the carrier was held to be in breach of their duty under article III.3(c) to issue on demand a bill of lading showing the apparent order and condition of the goods34.

(iii)  The Carrier’s Position: the Proviso in Article III.3 Provides an Apparent Escape Route for the Carrier The shipper’s right to demand a bill of lading showing the leading marks, number, quantity, weight, and apparent good order and condition is, however, immediately is simply too weighty to be borne by Scindia, in which the Privy Council held quite simply that a clause stating ‘weight, contents and value when shipped unknown’ did not qualify a statement on the bill as to the number of bags of rice shipped. Mr Shaffer himself advises caution in drawing the conclusion for which he argues from the decision of the Privy Council: see, further, Debattista ‘The Bill of Lading as a Receipt – Missing Oil in Unknown Quantities’ [1986] LMCLQ 468 at 478, footnote 37. See also, for a slightly different but closely related point, Anthony Diamond QC ‘The Hague-Visby Rules’ [1978] LMCLQ 225 at 254, where Mr Diamond suggests that the issue of a bill should be deemed to be sufficient evidence of a demand, such that all qualifications not justified by the proviso to article III.3 would be ignored. ‘At the present time, however’, Mr Diamond concludes, ‘this step seems unlikely to be taken’. Twenty years later, the courts decided that a demand for a bill of lading with unqualified statements cannot be assumed: see The Mata K [1998] 2 Lloyd’s Rep 614 at 618. 32 A clause taken from the front page of the CONLINEBILL 2000 bill of lading and one which appears in more or less the same form in most bills of lading. 33 By the same token, it might be argued that a carrier taking charge of a container stated on the bill as ‘said to contain 100 word-processors’ can be asked by the shipper to delete the words ‘said to contain’, at any rate where the intention behind those words is to qualify the representation as to the quantity of goods shipped. 34 The David Agmashenebeli [2003] 1 Lloyd’s Rep 92 at 115. There is no ‘contractual guarantee of absolute accuracy as to the order and condition of the cargo or its apparent order and condition’. What is required is that the bill of lading ‘expresses that which is apparent to the master … according to his own reasonable assessment’ (ibid at 105). See generally Parker, ‘Liability for incorrectly clausing bills of lading’ [2003] LMCLQ 201, particularly at 210–215 and 220–226: at 226, Parker expresses the duty ‘as one to exercise the skill and care of a reasonably observant master in signing (and, if necessary, clausing) the bills of lading accurately’. Cf. The Arctic Trader [1996] 2 Lloyd’s Rep 449 at 458: it is submitted that Evans LJ’s dicta regarding the carrier’s duty under the Hague-Visby Rules article III.3 to issue a bill of lading accurately describing the goods are so qualified by Evans LJ’s caveats regarding the exercise of a duty of reasonable skill and care that the difference between those dicta and the decision in The David Agmashenebeli are more apparent than real.

149

6.12

6.13 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped qualified where the carrier ‘has no reasonable means of checking’ the goods in question. This will regularly happen when the goods are shipped in sealed containers. Accordingly, the Rules which the Act brings into force do not lose sight of the fact that the figures and identifying marks which they impute to the carrier are, in truth, figures and marks which originate with the shipper. It was realised that there should consequently be some limit on the right of the shipper to insist upon the carrier’s acknowledgement of marks or figures, at any rate when these are marks or figures which are solely within the shipper’s knowledge. It was also recognised that the carrier ought to have a right of recourse against the shipper where the carrier found themselves bound by article III.4 to figures and identifying marks which, albeit acknowledged by the carrier, originated with the shipper. The first objective – the setting of a limit on the shipper’s right to insist on the carrier’s adherence to the shipper’s marks or figures – was reached through the proviso to article III.3 itself, which reserves to the carrier the right to say nothing at all about the identifying marks or quantity of the goods either where they have reasonable grounds for suspecting their accuracy, or simply where they have no reasonable means of checking their accuracy. The truth is, however, that no carrier is likely to exercise the right contained in the article III.3 proviso; it is a right, moreover, to which no shipper is likely to drive their carrier. A  bill of lading with nothing on its face as to the quantity of the goods on delivery to the carrier is of little commercial value to anyone. Carriers seeking to avoid making firm statements to which they might be bound towards receivers are far more likely to heavily qualify those statements than to make no statement at all. This is why ‘weight and quantity unknown’ clauses are so common in bills of lading and why the proviso to article III.3 is the most neglected part of the Hague-Visby Rules, with no litigation and serious comment to its name. In short, if a carrier wishes to negative a representation on a bill of lading, they are unlikely to not make the representation at all. Instead, they are likely to qualify it out of existence.

(iv)  The Carrier has a Right to an Indemnity Under Article III.5 Against the Seller/Shipper for Inaccurate Information 6.13

The second aim of COGSA 1971, as regards information in bills of lading, is to grant the carrier recourse against the seller for the consequences of inaccurate marks and figures. This was attained through the statutory imposition of an indemnity in the carrier’s favour in article III.5 which reads as follows: ‘The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way 150



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6.14

limit his responsibility and liability under the contract of carriage to any person other than the shipper.’ Here the figures and identifying marks are, as it were, turned back on to the shipper with whom they originated. While the marks and figures are clearly the carrier’s vis-à-vis third parties, like the buyer, in whose favour they constitute conclusive evidence under article III.4, they are, as between the carrier and the shipper, very much the shipper’s marks and figures for which the shipper remains responsible towards the carrier. In reality, it will be rare that a carrier has sufficient knowledge to prove the inaccuracy of the shipper’s statement.

(v)  The Shipper’s Right to Demand Clear Acknowledgement in a Bill of Lading is Practically Useful The shipper has simply to demand a clear acknowledgement from the carrier of statements entered on the bill by the shipper; those statements now constitute evidence of prima facie strength against the carrier in the shipper’s favour, and of irrebuttable strength against the carrier in the buyer’s favour; finally, the carrier retains throughout a right of recourse against the seller who shipped the goods for the consequences of inaccuracy in the marks or figures given them by the shipper. To read articles III.3, III.4 and III.5 together, one might therefore be forgiven for admiring the perfect lattice of provisions created by the Hague-Visby Rules safeguarding the interests of all three parties involved respectively in the drawing up, acknowledging and receiving of statements as to the goods on the bill of lading, ie the seller, the carrier and the buyer respectively. It starts to look as if the law of carriage by sea, at any rate where COGSA 1971 applies, provides adequate security to the receiver of goods, such that they need not, as buyer under the sale contract, or as the party instructing the opening of a letter of credit, seek further protection through those contracts against the effects of a heavily qualified, and, therefore, evidentially worthless, receipt. Unfortunately for the seller, though, one part of the otherwise perfect framework of rules in the law of carriage is weak: it is the part which is likely to be of most interest to the buyer and the reason for its weakness is one to which reference has already been made in the first paragraph of this chapter; for all the rights which COGSA 1971 grants the shipper as to the type of bill of lading they can demand from the carrier, from a commercial perspective the shipper is most unlikely to quibble with the carrier if this risks delaying the issue of the bill of lading, and consequently the time when the shipper can, as seller or beneficiary under a letter of credit, obtain payment of the price from the buyer35. 35 An express demand is necessary if the carrier is to be placed under a duty to issue a bill of lading complying with article III.3 and if the estoppel in COGSA  1971 art III.4 and that in COGSA 1992 s 4 are to apply: The Mata K [1998] 2 Lloyd’s Rep 614 at 618. In the absence of such

151

6.14

6.15 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped The prospect of a shipper who is also a seller under a sale contract and/or a beneficiary under a letter of credit rejecting36 a bill of lading against their carrier because of a qualification as to the description of the goods is unrealistic, at any rate when that qualification is couched in routine, ostensibly innocuous, terms like ‘shipper’s load and tally’ or similar words. With the goods loaded and the vessel departed, the shipper’s immediate interest is to accept the bill of lading and present it for payment to the buyer, if the sale is cash against documents, or to a bank, if a letter of credit is in place. The shipper’s right to demand an article III.3compliant bill of lading is consequently something of a ‘paper tiger’37. It is often only by drafting terms in the buyer’s favour in the sale contract and, where relevant, in the letter of credit that the seller can be persuaded to exercise the right given them by COGSA 1971 to demand a clear receipt from the carrier. The incentive may, of course, not work: the seller may still fail to exercise the rights given to them by the law of carriage. We ought consequently to ask, before we examine the buyer’s rights under the contract of sale, whether, if the shipper fails to exercise their right to demand a bill with unqualified statements as to the goods on shipment, the buyer might not, under the law of carriage by sea, exercise a similar right themselves.

(b)  The Buyer’s Rights to a Receipt Under the Carriage Contract (i)  The Buyer has no Right Against a Carrier for a Clear Receipt at Common Law 6.15

It is quite clear that a buyer has no common law right, as against a carrier, that the latter issue to the seller a bill of lading with a clear and unequivocal statement as to the quantity and condition of the goods on shipment. It would indeed be odd if the reverse were true: the suggestion that a buyer not yet party to a contract of carriage38 might have a right, under the law governing that contract, to dictate the

a demand, it is not open to the cargo-interest to seek to invalidate the qualification through the Hague-Visby Rules art III.8: ibid. See also Carver on Bills of Lading at para 2.003; sed contra Tetley Marine Cargo Claims (4th edn), p 686. 36 It has been argued that rejection is not the only arrow in the shipper’s quiver but that article III.3 creates a right to damages from the carrier: see Carver on Bills of Lading, para  9.165 and Parker, ‘Liability for incorrectly clausing bills of lading’ [2003] LMCLQ 201 at 219–220. Although damages were not actually awarded in The David Agmashenebeli [2003] 1 Lloyd’s Rep 92, in principle it is difficult to escape the conclusion that, if the carrier owes the shipper a duty and the shipper suffers a loss through its breach, then there must be a right to damages for demonstrable loss flowing from such breach. In order to preserve such right to damages as exists, however, it is important for the shipper to reserve their rights when ‘accepting’ the bill of lading, as the shipper did in The David Agmashenebeli itself. 37 See John Richardson The Hague and Hague-Visby Rules (1998), 23. 38 Before the buyer becomes the lawful holder of the bill of lading for the purposes of COGSA 1992, the buyer is not a party to the contract of carriage unless, of course, they are the charterer of the vessel on which the goods are shipped.

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Buyers’ and Sellers’ Rights to Demand a Clear Receipt From the Carrier

6.16

terms in which receipt of the goods is acknowledged by the carrier immediately faces difficulties caused by the doctrine of privity of contract. Nevertheless, this leaves the buyer in a potentially difficult situation as the following illustration shows: B  buys 100 tons of sugar from S  on CIF terms, payment by letter of credit, the Uniform Customs and Practice for Documentary Credits (the UCP 600) to apply to the credit. S concludes the carriage contract with C, the carrier, and, for present purposes, we are to assume that COGSA 1971 does not apply to that contract because we are here looking at the buyer’s rights against the carrier at common law. B receives a message from S declaring shipment on C’s vessel, and B learns that C’s standard bill of lading acknowledges receipt of goods ‘weight and quantity unknown’. The question is: can the buyer require the carrier to stipulate the weight and quanity such that any subsequent shortage claim by B against C will be governed by the statement in the bill that 100 tons of sugar have been shipped? The answer is ‘no’. The buyer cannot make such a demand of a carrier with whom they have, as yet, no contract. Further, we have already seen that the seller, as shipper of the goods under the contract of carriage, has no right at common law to the issue of a bill of lading with unqualified statements as to the goods on shipment39. If the seller has no right to such a document, then a fortiori the buyer can have no such right.

(ii)  The Buyer has no Right to a Clear Receipt Under COGSA 1971 As we have seen already40, where the contract of carriage concluded between seller and carrier is governed by COGSA 1971, the seller has a right, as shipper of the goods, to demand a bill of lading with clear and unequivocal statements as to the goods at the time of delivery to the carrier. The buyer, however, cannot make a similar demand given that they are not, prior to the transfer of the bill of lading, a party to the contract of carriage governed by COGSA 197141. Instead, the buyer needs to look to terms in (1) their sale contract, and (2) in their letter of credit in order to ensure that they receive a bill of lading stating clearly what was shipped. It is to such terms that we now turn.

39 See para 6.11 above. 40 See para 6.12 above. 41 The Contracts (Rights of Third Parties) Act 1999 cannot give the buyer such a right through section 1 because of section 6(5) which excludes third party rights in the case of a contract for the carriage of goods by sea. Of course, where the buyer is a charterer, they have a contract of carriage with the carrier and may well protect themselves by stipulating in the charterparty for the issue to the seller of such a bill of lading.

153

6.16

6.17 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped

THE BILL OF LADING MUST SAY CERTAIN THINGS ABOUT THE GOODS FOR IT TO BE GOOD TENDER UNDER SALE CONTRACTS AND LETTERS OF CREDIT 6.17

Because the buyer has neither privity of contract with the carrier nor other common law or statutory right to demand the carrier to make certain representations in the bill of lading, if the buyer wants to protect their interests, they have to do this through terms, express or implied, in (1) the sale contract, and/or (2) the letter of credit, where applicable. The buyer’s aim is to make payment of the price conditional on the tender by the seller of a bill of lading that makes clear and unequivocal statements as to the identity, quantity and condition of the goods on shipment. This is so that the buyer can prove its loss against the carrier where something goes wrong. Where payment of the price is made conditional on tender of a bill conforming with the buyer’s requirements as to identify, quantity and condition, the seller is given a reason, by the contract of sale and by the letter of credit, to exercise such rights as they have to a firm receipt under the law of carriage. The form and source of such terms are the subject of the third part of this chapter. As to which, at times, the courts are quite willing to imply such terms into the sale contract in the buyer’s favour42; but at others, they are not so ready to fill gaps into which the buyer has fallen by default43. Moreover, as will be explained, it is alarmingly easy for one contract involved in an international trade transaction to be out of kilter with another44. For all these reasons, care needs to be taken by the buyer in the drafting both of the contract of sale and of the instructions to the bank issuing a letter of credit. We shall be discussing the requirements of the bill of lading as a receipt under these contracts in the following order: first, terms as to statements about the quantity of the goods; and secondly, those as to the ‘cleanliness’ of the bill.

42 As, for example, in Re Keighley, Maxted & Co and Bryan, Durant & Co (No 2) (1894) 7 Asp MLC 418, where an undertaking to tender a bill of lading for the contract goods was readily implied. 43 Thus, it is not at all clear whether the courts will imply a term imposing upon the seller a duty to provide a bill of lading which states without qualification the quantity in which the goods were shipped: contrast The Galatia [1979] 2 Lloyd’s Rep 450, affirmed at [1980] 1 Lloyd’s Rep 453, with Libeau Wood Co v Smith (H) & Sons Ltd (1930) 37 Ll L Rep 296. 44 Contrast, for example, the seller’s obligation under a CIF sale contract to tender a bill of lading stating the goods to have been shipped in the quantity stated in the sale contract, with their right under the UCP 600 to tender a bill of lading stating the quantity to be within 5 per cent more or less than that stated in the letter of credit: UCP 600 art 30(b).

154

The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.19

(a)  The Bill of Lading Must Cover Contract Goods and no Others (i)  The Sale Contract Requires the Bill of Lading to be for the Contract Quantity It has long been settled that the common law implies into CIF sale contracts a term that the seller shall tender to the buyer a bill of lading for the quantity of the goods stated in the sale contract45. Thus, in Re Keighley, Maxted & Co and Bryan, Durant & Co (No 2)46, a seller who had expressly reserved the right to ship more cargo than that sold, the excess to be held in trust for them, was held nonetheless to be under a duty to tender a bill of lading for the quantity bought by the buyer: any other result would have made it difficult for the buyer to sell the goods in transit and would thus have been wholly inconsistent with the very nature of a sale on shipment terms47. The sale contract in that case said nothing about the terms in which the quantity shipped was to be stated on the bill: where Incoterms 2020 are incorporated into the contract, though, the obligation to tender a bill of lading which ‘must cover the contract goods’ is expressed in clear terms, at any rate where the sale is on CIF terms48.

6.18

Problems can Arise When the Quantities in the Sale Contract or Letter of Credit are Only Approximate The sale contract itself may, of course, not specify the quantity sold with precision. Thus, contracts for the sale of commodities will frequently state the quantity sold as ‘[a stated quantity] 2% more or less’49. It is clear that, if the seller is allowed by the contract to ship goods within a given tolerance, they are also allowed to tender a bill of lading stating shipment of a quantity within the same limits50. Even where the sale contract does not allow a tolerance threshold, problems relating to the precise quantity stated may arise with the tender of bills of lading under the letter of credit used to finance such a sale. Consider the following example: a sale contract gives, say, ‘500 tonnes of wheat’ as the quantity sold; the letter of 45 The same term, it is submitted, will be implied in C&F  contracts and in FOB contracts of the extended and classic varieties, that is to say, in those contracts where the seller is the party responsible for taking the bill of lading from the carrier. 46 (1894) 7 Asp MLC 418. See also Tamvaco v Lucas (No 1) 120 ER 1027, at 1032, where the quantity shipped was actually within the limits set by the contract; yet a bill of lading indicating that those limits had been exceeded was held to be bad tender. 47 Re Keighley, Maxted & Co and Bryan, Durant & Co (No 2) (1894) 7 Asp MLC 418, particularly at p 420, per Lopes J. 48 See Incoterms 2020, CIF A6. 49 See, for example, GAFTA 100, clause 2. 50 There appears to be no authority explicitly supporting the proposition stated in the text; it does, however, seem to follow inexorably from the seller’s obligation, express or implied, to tender a bill of lading ‘for the contract goods’: if ‘the contract goods’ are ‘500 tonnes of wheat 2% more or less’, then a bill of lading stating shipment of ‘510 tonnes of wheat’ would be a bill ‘for the contract goods’.

155

6.19

6.20 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped credit similarly envisages the tender of a bill of lading for 500 tonnes of wheat; yet the bill of lading actually tendered to the bank states that ‘495 tonnes of wheat’ have been shipped. On these facts, and particularly against a falling market, the buyer may well expect the paying bank to reject the shipping documents on the ground that the bill of lading does not conform to the requirements of the letter of credit. The buyer will, however, be surprised to learn that the bank can, indeed must, accept the documents in the circumstances described above; for UCP 600 art 30(b) allows, in the absence of specific provision in the letter of credit, tender by the seller of a bill of lading stating shipment of a quantity within 5 per cent either way of that stipulated in the credit51. Consequently, the seller in our example is paid the price under the credit facility; the bank is not liable to the buyer for breach; and neither is the carrier, for they have performed their undertaking to deliver what was shipped. Neither would the buyer’s position as against the seller be clear. Although it would appear that the seller is in breach of their undertakings to ship 500 tonnes of wheat and to tender a bill of lading for the same amount, it is not entirely clear that the buyer would or could pursue the seller for a remedy. First, such redress is hardly likely to commend itself to the buyer if it means obtaining judgment and execution against a foreign defendant, quite possibly in a foreign jurisdiction. Second, it would be at least arguable either that the discrepancy came within the margin of allowable de minimis52 or that, whether or not it did, the acceptance of the documents by the banks had estopped the buyer from now suing the seller for damages under the contract of sale53. Given these difficulties with a possible remedy against the seller, it is much better for the buyer to have anticipated the problem through the simple device of stipulating in the letter of credit, as UCP 600 art 154 allows the buyer to do, that the quantity of goods specified must not be exceeded or reduced, in effect contracting out of art 30(b).

(ii)  How Many Bills of Lading, for how Many Quantities and for how Many Cargoes? 6.20

Traders may want to tender one or more bills of lading for one of a number of reasons: it may be unclear at the time of shipment whether the entire cargo is to be appropriated to one contract; there may be fiscal or other charges which 51 The relevant part of the article reads as follows: ‘A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit’. Thus, in a sale of 100 cars, or of 10 containers of word-processors, the problem referred to in the text could not arise. 52 Section 30(2A)(b), allowing a buyer to reject delivery of a quantity slightly larger than the quantity purchased, does not apply to the tender of documents or, arguably, to CIF contracts: see Benjamin, para 19–012; for cases allowing the seller to tender a larger de minimis quantity, see the cases cited in Benjamin at footnote 82 of the same paragraph. 53 The points of both of these arguments, the first de minimis, the second the rule in Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd’s Rep 53, will both be discussed in Chapter 9. 54 According to this article, the UCP apply ‘unless expressly modified or excluded by the credit’.

156

The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.22 depend on the bill of lading date; finally, and particularly in the oil trade, the price agreed between the seller and the buyer may be fixed by reference to a particular quotation running from the bill of lading date55. In any of these cases, it may be in the seller’s or the buyer’s interest to ask the carrier to issue several bills of lading bearing different dates and representing different quantities of the goods shipped. These commercial circumstances raise two different but related legal issues. First, what is the seller’s duty under the contract of sale: must the seller tender one bill of lading, or can they choose to tender, or the buyer choose to demand, more than one bill of lading? Secondly, what is the carrier’s position under the contract of carriage? Can they insist on issuing one bill of lading for the entire cargo? Multiple Bills and the Position Between Seller and Buyer The number of bills of lading that the seller must tender to the buyer, and for what quantity, depends on any express terms contained in the sale contract, as the sale contract governs the seller’s relationship with the buyer. In the absence of express terms, we suggest that the default position should depend on whether the sale contract is, as a matter of construction, a sale of several different cargoes or a sale of one type of goods or commodity. Thus, for example, if the same sale contract envisages the sale of 2,000 tonnes each of three different types of rice, then it would be perfectly reasonable for the buyer to expect that the seller should tender three different bills of lading, one for each type of rice which they might want to sell on to different buyers, each under separate on-sales. Of course, the best way for the buyer to secure the tender of three bills in such circumstances would be for them so to stipulate in the sale contract and, if they are paying by letter of credit, in the letter of credit. We suggest, however, that even in the absence of such a term, the buyer would be entitled to tender of a bill of lading for each of the types of cargo shipped by virtue of an implied term to the same effect.

6.21

On the other hand, if the sale contract contemplates the shipment of the 6,000 tonnes of the same type of oil, then the seller is both entitled and bound to tender one bill of lading for the entire quantity56: multiple bills for separate quantities, issued to suit the commercial interests of one or the other of the parties, would not be bills of lading for the contract quantity. Multiple Bills and the Position Between Shipper and Carrier The shipper of goods may ask the carrier for multiple bills to be issued. As to the carrier’s obligations, the starting point is that the carrier must issue such bills of lading as they agreed to issue in the contract of carriage. That contract is not, as we shall see in the next chapter, contained in the bill of lading but will be contained in 55 Fixing the price according to the Platts quotation: see, for example, The Eurus [1998] 1 Lloyd’s Rep 351. 56 A concession in this direction was approved of by the court in The Wilomi Tanana [1993] 2 Lloyd’s Rep 41.

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6.22

6.23 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped the fixture made between the shipper and the carrier, either orally when space was booked, or in writing, by correspondence, booking-note or charterparty. It is, of course, open to the parties when they conclude the contract of carriage to agree expressly on the number of bills of lading which the carrier is to issue. In the absence of such express terms, the default position would be regulated, where the Hague-Visby Rules apply to the contract of carriage, by article III.3 of those Rules, which reads in relevant part: ‘After receiving the goods into his charge the carrier shall, on demand of the shipper, issue to the shipper a bill of lading’ (emphasis added). The application of this article to the question of multiple bills is a matter of construction. There is no settled law on the topic but, if the cargo being shipped is composed of one commodity or of one type of goods (for example, cement), then ‘the goods’ would likely be composed of the entire quantity shipped, and only on shipment of the entire quantity would the carrier be bound to issue, on the shipper’s demand, ‘a’ bill of lading. On the other hand, if the cargo being shipped is composed of different goods (for example, barley and wheat), the shipper may be entitled to one bill of lading for each cargo. For instance, it would be difficult for the carrier to insist in these circumstances on issuing one bill of lading for both cargoes if the shipper required the issue of two bills on shipment of each of the two types of goods – and it would be difficult to see why the carrier would refuse so to issue. Nevertheless, a shipper particularly anxious to receive two bills of lading would be best advised to agree as much in the contract of carriage when space is booked, especially where, as seller, they have agreed with their buyer to tender two bills of lading under their sale contract or under the letter of credit.

(iii)  Carrier’s Qualifications on the Statement as to Quantity 6.23

From the buyer’s point of view, it is not enough for the seller to tender a bill of lading stating that goods in the contract quantity have been shipped, if that statement is qualified by statements such as ‘weight and quantity unknown’ or ‘shipper’s load and tally’ or ‘said to weigh/contain’. As to whether the buyer can reject a bill of lading with such qualifications, the position, though not free from doubt, can be summarised as follows: where the contract is silent as to the acceptability of bills of lading with ‘weight and quantity unknown’ clauses, it is possible to argue that the buyer: (a) can reject a bill containing such a clause but also saying clearly that goods in a stated quantity have been shipped; and (b) cannot reject a bill with such a clause where the bill only states that goods in a given quantity are ‘said’ to have been shipped. The accuracy of proposition (a) depends on whether it is correct to distinguish the ratio in two cases in this area: Donaldson J’s judgment in The Galatia57 from Macnaghten J’s judgment in Libeau Wood Company v H Smith & Sons, Ltd58, to which we now turn.

57 Which judgment, albeit given in the Commercial Court, was later affirmed in the Court of Appeal. 58 (1930) 37 Ll L Rep 296.

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The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.24 ‘Weight and Quantity’ Unknown Clauses and Cash Against Documents Sales: The Galatia The position is said59 to be governed by the decision of Donaldson J  in The Galatia60, in which one of the issues was whether a seller CIF was entitled to tender to a buyer a bill of lading containing a ‘weight and quantity unknown’ clause. The judge held that they were thus entitled on the ground that, as the statement as to quantity on the bill acknowledged shipment of sugar ‘said to weigh 200.8 tonnes’, the ‘weight and quantity unknown’ clause in no way qualified that statement, since in neither was the carrier representing anything from their actual knowledge. Indeed, the two phrases were perfectly consistent; consequently, the bill of lading was clean61 and, therefore, its tender was valid.

59 See Benjamin, para 19–037; and Goode Commercial Law, pp 894–5. 60 [1979] 2 Lloyd’s Rep 450, particularly at 457, a judgment upheld in the Court of Appeal, reported at [1980] 1 Lloyd’s Rep 453 but which adds nothing to Donaldson J’s consideration of this point. 61 Donaldson J’s decision on this point was expressed in terms of whether or not the bill of lading was internally consistent, and therefore clean, and therefore valid. With respect, this analysis proceeds upon an interpretation of the word ‘clean’ somewhat wider than that which it generally bears, although it must be said at the outset that the word has been notoriously difficult for lawyers to define: see Benjamin, para  19–038. There seem to be two views in contention: the narrow interpretation, calling a bill clean if it contains no qualification of the statement that the cargo has been shipped in apparent good order and condition; and the wider interpretation, calling a bill clean so long as it contains no inconsistencies concerning any of the representations made about the goods, including those about quantity. Clearly, if the wider sense is preferred, it should be easier for a judge to hold invalid the tender of a bill with a ‘weight and quantity unknown’ clause, though ironically Donaldson J, while adopting the wider view, held such tender to be valid. Be that as it may, such authority as exists very much favours the narrow interpretation of the word ‘clean’: see Salmon J in British Imex v Midland Bank [1958] 1 QB 542 at 551 (whose view is, incidentally, adopted without contrary comment by Donaldson J in The Galatia itself at p 455), and other cases cited by Benjamin, para 19–038; see also UCP 600 art 27 which defines a clean bill as ‘one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging’. Authority for the wider understanding is, to say the least, meagre: Donaldson J traces it to a judgment of Cave J in The Restitution Steamship Company v Sir John Piries & Co (1889) 6 Asp MLC 428, a case dealing with recovery of demurrage under a charterparty, where the judge refers, at p 430, to a definition said to be given in Pollock and Bruce’s Law of Merchant Shipping. This is curious because the relevant edition of that work, the fourth, published in 1881, defines a clean bill in the narrower of the two senses given above; at p 341, the editors write: ‘A bill of lading commonly states that the goods are shipped in good order and condition, and are to be delivered in like good order and condition, and a bill of lading in such a form is commonly called a clean bill of lading’ (emphasis added). The editors go on to describe the evidential effects of ‘weight and quantity unknown’ clauses, at no stage suggesting that their use makes a bill unclean or invalid. Given the state of the authorities, to link statements as to quantity to the notion of cleanliness is, with respect, to risk confusion: contrast the approach of Macnaghten J in Libeau Wood Company v H Smith & Sons, Ltd (1930) 37 Ll L Rep 296, who deals with the matter on the basis of the much simpler and more appropriate question as to whether the tender of a bill of lading with qualifications as to quantity is ‘proper’.

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6.24

6.25 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped Distinguishing The Galatia and Following Libeau Wood 6.25

Donaldson J’s judgment in The Galatia62 arguably leaves open the question as to whether tender is valid where a bill marked ‘weight and quantity unknown’ states the quantity on shipment without the ‘said to weigh …’ qualification. Presumably, a buyer seeking to justify rejection on these facts could distinguish The Galatia on the basis that on such facts there would clearly be an inconsistency between the ‘weight and quantity unknown’ clause and the statement as to quantity. The buyer’s argument in such a case could be supported by a judgment of Macnaghten J in Libeau Wood Company v H Smith & Sons, Ltd63 in which the judge upheld a CIF buyer’s rejection of a bill of lading which contained both an annotation stating that part of the cargo had been lost during loading and a ‘weight and quantity unknown’ clause. The sellers’ argument that the latter type of clause was so common that it could not conceivably invalidate an otherwise valid tender64, was given extremely short shrift by the judge. At p 300 of the report, Macnaghten J, treats both clauses together as equally offensive to the nature of a CIF contract: ‘[I]f I  followed [counsel for the sellers] aright every bill of lading is nothing more than an acknowledgement of the shipment of an unknown quantity of goods, the description of which may or may not be in accordance with the statement in the document. I think the argument of [counsel for the buyers] on that point is right. A bill of lading which the buyer is bound to accept must be a document acknowledging the shipment of a quantity of goods according with the quantity specified in the invoice and for which the seller demands payment. And if there is an invoice for a specified quantity and the bill of lading is for either an unknown quantity of goods or a quantity of goods substantially different from that in the invoice, the bill of lading would not be a proper bill of lading which the buyer would be compelled to accept.’ Can the Buyer Reject a Bill of Lading Qualifying the Statement as to the Quantity of Goods Shipped?

6.26

In our view, it is possible to distinguish The Libeau Wood from The Galatia. However, given the uncertainty surrounding the position, buyers keen to obtain from their sellers firm receipts issued by the carrier would be well advised to insert appropriate clauses in their contracts of sale, making it clear that bills of lading containing ‘weight and quantity unknown’ clauses are unacceptable. If the buyer deems such words unachievable in the negotiations towards a sale contract, the same effect can be achieved by contracting for the tender of a bill of lading ‘for the invoice quantity’. A bill of lading stating, for example, ‘1000 mts of rice,

62 [1979] 2 Lloyd’s Rep 450. 63 (1930) 37 Ll L Rep 296. 64 A circumstance which made Donaldson J ‘not unhappy’ to reach the (contrary) conclusion he did: see The Galatia [1979] 2 Lloyd’s Rep 450 at 457.

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The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.28 weight and quantity unknown’ would not, it is suggested, be a bill of lading for the invoice quantity. ‘Weight and Quantity Unknown’ Clauses and Letters of Credit As to ‘weight and quantity unknown’ clauses and their validity in relation to letters of credit, the position is clear: the tender of a bill of lading containing a ‘weight and quantity’ unknown clause is valid tender. The UCP 600 allows, in the absence of contrary instruction in the letter of credit65, tender by the seller of documents containing clauses such as ‘shippers load and count’ or ‘said by shipper to contain’ or words of similar effect66. Accordingly, where a letter of credit is used for payment, a buyer anxious to obtain a bill of lading from the seller containing an unqualified statement as to the quantity of the goods on shipment needs expressly to include a clause to that effect in their contract of sale or in their instructions to the issuing bank.

6.27

(b)  The Bill of Lading Must be ‘Clean’ for Tender to be Valid Under a Sale Contract or Letter of Credit As well as a statement relating to the quantity of goods shipped, the bill of lading contains a statement as to the apparent67 order and condition in which they are shipped. Where this statement is unqualified by reservations indicating a defect in the apparent condition or packaging of the goods, the bill of lading is said to be ‘clean’68; where it is so qualified, it is said to be ‘claused’. The reason for the buyer’s strong preference for a clean bill of lading is abundantly clear: the buyer’s position in an action against the carrier for damage to goods will be radically affected by the statement made by the carrier as to the apparent condition in which the goods were shipped on board; whether the buyer is making use of the common law estoppel created in their favour by the courts69, or that established by COGSA 197170, these estoppels are only as good as the representation on which 65 Allowed by UCP 600 art 1: see fn 54 above. 66 See UCP 600 art 26(b). The Banking Commission of the International Chamber of Commerce, the ICC agency charged with the occasional revision and constant monitoring of the operation of the UCP, has declared itself to be of the view that a ‘weight and quantity unknown’ clause is clearly a clause containing ‘words of similar effect’ for the purposes of this article, or rather, of an earlier counterpart, article 17 of the 1974 Revision. The Commission, however, found it impossible to come to a final view as to whether this article applied generally or only to containerised cargo: see, respectively, Decisions (1975–1979) of the ICC Banking Commission, 1980, Paris, at pp 35–7 and 39–40. 67 The statement makes a representation about the external appearance of the goods rather than about their actual, internal condition: Compania Naviera Vascongada v Churchill & Sim [1906] 1 KB 237. 68 As to the definition of the word ‘clean’, see the discussion at para  6.26 and fn 61 above and para 6.31 below. 69 See Compania Naviera Vascongada v Churchill & Sim [1906] 1 KB 237. 70 In COGSA  1971 Sch art III.4. Section 4 of COGSA  1992 does not make the bill of lading binding in favour of its lawful holder as regards statements as to apparent order and condition.

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6.28

6.29 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped they are based. Consequently, the buyer wants the best possible representation – a completely unqualified one. Moreover, the buyer is unlikely to be able to sell the goods through another documentary sale while they are in transit if the document evidencing their shipment openly states that something was wrong with them on shipment. In these circumstances, it is not surprising to find that sale contracts frequently stipulate in express terms that the seller must tender a clean bill of lading71; and it has been suggested that, where there is no express term in the sale contract to that effect, one ought to be implied72. Claused Bills: What Does the Word ‘Clean’ Mean? 6.29

Problems frequently arise as to whether the bill of lading tendered by the seller, whether directly to the buyer in a cash against documents sale or to the advising or confirming bank under a letter of credit73, is clean. A  buyer keen to escape from a sale contract against a falling market may be inclined to search for pretexts for rejection which a seller anxious for payment will need to rebut. A  number of situations are clearer than others74, and a number of illustrations will serve to show how problems can arise – and how they can be avoided: (a)

The sale contract or the letter of credit does not expressly state that a clean bill of lading is required. The bill of lading states that the goods have been shipped in apparent good order and condition. Such a bill of lading is clean. There is no clause here qualifying the statement that the goods have been shipped in apparent good order and condition.

71 See, for example, FOSFA 54, clause 10, line 92. Where payment is through a letter of credit, this requirement is reflected in UCP 600 art 27. 72 See Benjamin, at para  19–038, text accompanying footnote 96. So pervasive is the seller’s obligation under the sale contract to tender a clean bill of lading that shippers frequently give, and honour, an indemnity holding the carrier harmless against the consequences of issuing a clean bill in circumstances where clausing would have been more appropriate: see Scrutton, article 61, footnote 63 and Jack, para 8.123 where this is described as a ‘dangerous and highly undesirable practice’. Such an indemnity must be expressed in the contract of carriage and cannot simply be implied against a shipper-charterer from the authority given them by the charterparty to present bills of lading to the master for signature: see The Nogar Marine [1988] 1 Lloyd’s Rep 412 and The Arctic Trader [1996] 2 Lloyd’s Rep 449; cf. The Boukadoura [1989] 1 Lloyd’s Rep 393. Where the purpose of the express indemnity is to encourage the carrier to make a fraudulent representation about the state in which the goods are shipped, the indemnity may be unenforceable: see Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2  QB  621, where Lord Evershed MR dissented and Pearce LJ only reluctantly joined Morris LJ in finding against enforceability. The reaction to the decision in the literature was equally ambivalent: for what is, with respect, a somewhat moralistic approach, see (1957) 73 LQR 438; for a rather more pragmatic view, see that by Mr F J Odgers in [1958] CLJ 20. It is, perhaps, unfortunate that this case did not reach the House of Lords, despite leave to appeal being given by the Court of Appeal. 73 For purposes of letters of credit, UCP  600 art  27 defines a clean transport document as one ‘bearing no clause or notation expressly declaring a defective condition of the goods or their packaging’. 74 ‘A  “clean” bill of lading has never been exhaustively defined, and I  certainly do not propose to attempt that task now’, per Salmon J in British Imex Industries Ltd v Midland Bank Ltd [1958] 1 QB 542 at 551. See also para 6.26 and fn 61 above.

162

The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.29 (b)

The sale contract or the letter of credit expressly requires the tender of a clean bill of lading and the bill of lading states that the goods have been shipped in apparent good order and condition. The issue here is whether for the bill of lading to constitute good tender, it needs not only to be clean, but also to state that it is clean, whether by notation or by a typed or handwritten comment on the bill of lading. It is suggested that, at any rate where the sale contract or the letter of credit do not expressly require the addition of the word ‘clean’ on the bill of lading75, a clean bill of lading would constitute good tender even in the absence of an express statement on the bill that it is clean76.

(c) Whether the sale contract or the letter of credit expressly requires the tender of a clean bill of lading, the bill of lading states that the goods have been shipped in apparent good order and condition, but then states that the goods or part of them, were damaged at the time of or after shipment. It is clear on authority, at any rate in the context of the tender of documents directly by seller to buyer, that such a bill of lading is clean77. The moment at which the carrier makes the statement to which they are bound regarding the apparent good order and condition is the moment of shipment, which is the moment when all the goods are on board. Consequently, statements on the bill of lading describing damage after the moment of shipment are not statements qualifying the statement of apparent order and condition on shipment: that statement, therefore, remains unqualified and the bill remains clean. From a commercial viewpoint, this may seem harsh on the buyer, who is thus bound to pay against a bill of lading disclosing loss in transit. On the other hand, such a result is perfectly consistent with the basic rule in shipment sales that risk of transit loss lies with the buyer78. The position regarding statements as to post-shipment damage is not quite so clear where payment is made through a letter of credit. The relevant article in the UCP 600 is article 27 which defines a clean transport document as ‘one bearing no clause or notation expressly declaring a defective condition of the goods or the packaging.’ The article does not tie the definition of a clean document to the moment of shipment and it has, therefore, been argued that a statement describing post-shipment loss would render the document unclean which a bank would consequently be entitled and bound to reject. It would be unfortunate if the rules regulating cash against document sales and those regulating sales where the price is paid through a letter of credit were to differ on such a crucial matter. It 75 As would be the case where, for example, the contract or the letter of credit requires the tender of bill of lading ‘stamped clean’, or even perhaps where the contract of the letter of credit requires the ‘tender of a “clean” bill of lading’. 76 See Jack at para 8.121 on the counterpart article of the UCP 500, ie art 32. 77 The Galatia [1980] 1 Lloyd’s Rep 453. 78 See Chapter 4 above.

163

6.30 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped would, moreover, be particularly unfortunate if the rules regarding letters of credit were to contradict so materially the basic rule in shipment sales that risk of transit loss lies with the buyer. The better view is, therefore, that even in the context of letters of credit, statements as to post-shipment loss do not render a bill of lading unclean79. (d)

Whether the sale contract and/or the letter of credit expressly requires the tender of a clean bill of lading, and the bill of lading states that the goods have been shipped in apparent good order and condition, but also says: ‘wet and torn bags’ or ‘packaging damaged’ or ‘stench noticed’. It is clear here that the bill of lading is unclean: such clausing is precisely the type of qualification which the buyer wants to avoid if they are to retain the benefit of any estoppel they might have with which to bind the carrier to the statement as to shipment in apparent good order and condition. Where payment is made through a letter of credit, a bill of lading containing such clauses would still be acceptable to a bank where the letter of credit expressly states as much80. Thus, for example, if a letter of credit were to state that bills of lading containing clausing as to, say, rust, were acceptable, a bank would be entitled and bound to accept such a bill of lading81.

(e)

The bill of lading contains the same statements as those described at (d) above but also contains a stamped, typed or handwritten notation stating the bill to be clean. It is clear that such a bill of lading is not clean. Just as a statement of cleanliness is not necessary to make a clean bill of lading clean82, so a statement of cleanliness is not sufficient to make a claused bill clean. Once a bill is claused, it is claused.

A Buyer is Unlikely to be Able to Reject a Bill of Lading Stating the Goods are ‘Shipped in Apparent Good Order and Condition – Condition Unknown’ 6.30

A particular difficulty arises where the bill states that the goods have been shipped in apparent good order and condition, but then states, normally in standard, preprinted words, that the value, contents or condition are unknown. In such a case, can a buyer reject the bill of lading as against the seller on the ground that it is 79 See Jack, at para 8.131, and The Galatia [1979] 2 Lloyd’s Rep 450 at 450–456, per Donaldson J, approved in the Court of Appeal at [1980] 1 Lloyd’s Rep 453. 80 Although article 27 does not, as did its predecessor UCP 500 art 2, allow in terms for a Credit which ‘expressly stipulates the clauses or notations which may be accepted’, the effect of article 1, which applies UCP 600 ‘unless modified or excluded by the Credit’, is that if the letter of credit allows clausing of the bill of lading, then a bill of lading containing such clausing is acceptable under the letter of credit. 81 See UCP  600 art  27. There is presumably no reason to suppose that the position would be different in a similar cash against documents sale. 82 See (b) in the text above.

164

The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.30 unclean? In our view, it is unlikely that a court would allow the buyer to reject the bill of lading on such grounds. The question has never arisen for decision in quite the way it has been put here, that is to say in litigation brought by the seller against the buyer for wrongful rejection83. The reason for this is probably that the law of carriage by sea safeguards the interests of buyers, as receivers, to such a degree that rejection of the bill against the seller becomes quite unnecessary. The courts have always been extremely quick to protect buyers, and their estoppels, against carriers, by interpreting clauses seeking to qualify the statement that the goods were shipped in apparent good order and condition strictly against the carrier. Thus, in Compania Naviera Vasconzada v Churchill & Sim84, the carrier’s statement that timber had been ‘shipped in good order and condition’ was held not to have been qualified by the words ‘quality and measure unknown’, the word ‘condition’ being interpreted as referring to ‘external and apparent condition’85, the word ‘quality’ to ‘something which is usually not apparent, at all events to an unskilled person’86. The distinction was even used to the buyer’s advantage in The Tromp87, where the relevant clause read ‘weight, quality, condition and measure unknown’, and where it might, therefore, have been thought that the carrier had successfully qualified their representation that the goods had been shipped in good order and condition. In what is, with respect, a somewhat disingenuous part of his judgment88, Duke J held that where the damage complained of was wetness in bagged potatoes, the statement ‘shipped in good order’ was left unqualified by the clause ‘quality, condition unknown’ because, while ‘quality’ and ‘condition’ might, on these facts, be taken to refer to the actual, internal state of the potatoes, the word ‘order’ must be taken to refer exclusively to their apparent state; and as to that, there was no qualification and the carrier was consequently bound by their representation that the potatoes had been shipped in apparent good order. A similar play on words was not available to Langton J in The Skarp89, where the clauses were in effect identical to those in The Tromp90, but where the cargo was timber, as in the Compania Naviera case91. The judge was clearly not inclined to allow the carrier to escape from the estoppel through the simple expedient of making a statement, ‘shipped in good order and condition’, which was then qualified out of existence by another, ‘condition unknown’: ‘[I]t is difficult to understand why 83 Although it did arise, in an oblique and hypothetical way, in Peter Cremer Westfaelische Central Genossenschaft GmbH and Intergraan NV v General Carriers SA [1973] 2 Lloyd’s Rep 366 at 375, where Kerr J indicates that a ‘quality unknown’ clause would not entitle buyers to reject a bill of lading because such words ‘are ineffective to qualify a statement that the goods have been shipped in good order and condition’. 84 [1906] 1 KB 237. 85 Loc cit at 245. 86 Ibid. In the same sense also The Peter de Grosse (1876) 1 PD 414, where the relevant clause was ‘weight, contents, and value unknown’. 87 [1921] P 337. 88 Loc cit at pp 348–9. 89 [1935] P 134. 90 [1921] P 337. The clauses in The Skarp were: shipped ‘in good order and condition’; and ‘condition, quality, description and measurement unknown’. 91 [1906] 1 KB 237.

165

6.31 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped the affirmation or acceptance of one untruth should be cleared by a deliberate statement of another untruth’92. However compelling the reason for limiting the effect of the qualification, though, the judge had to achieve that result through reasoning which did no violence to the parties’ contractual liberty: Langton J did so by construing the word ‘condition’ in the ‘unknown’ clause, though (remarkably) not in the ‘shipped’ clause, as referring to the actual quality of the cargo as timber: ‘whether it was ripe or over-ripe or something of that sort’93; again, consequently, there was no qualification of the statement as to apparent condition, to which statement the carrier was, therefore, bound. To such extremes of construction are the judges willing to go, in cargo claims against the carrier, so as to preserve the statement that goods have been shipped in good order and condition as a clear and unequivocal representation that they have been so shipped. This being the case, it seems that the buyer need seek no further protection against such clauses by stipulating in their sale contract that a bill of lading containing a ‘condition unknown’ clause cannot be tendered. Moreover, in the absence of such stipulation in the sale contract, rejection of such a bill would, it is submitted, put the buyer in breach. Likewise, rejection by a bank under a letter of credit would be a breach of its duty to accept and pay against conforming documents, the qualification ‘quality and condition unknown’ not expressly declaring a defective condition of the goods and/or packaging for the purposes of article 27 of the UCP 600.

(c)  ‘Certificate Final’ Clauses can Provide Binding Evidence of the State of the Goods on Shipment 6.31

Bills of lading only attest the apparent condition of goods shipped. Accordingly, buyers will typically make sure that sellers are under an obligation to ship goods which comply with certain attributes specified in the contract of sale. These attributes go under a variety of names and will appear under different headings, for example: the goods, the commodity, quality, condition of the goods, description, specifications. The law regulating the seller’s physical obligations in this regard, and the buyer’s remedies in case of breach, is comprehensively set out in more general books on the sale of goods94. This book concentrates on the documentary aspect of international sales contracts. We therefore focus here on the common practices in commodity sales (1) of stipulating for the tender of survey or inspection certificates at the loadport, and (2) of making such certificates ‘final’ as between the parties to the sale contract.

92 [1935] P 134 at 144. 93 Loc cit at 143. 94 See Benjamin on Sale of Goods (10th Edition) at paras 19–147 to 19–232 (for CIF sales) and 20–112 to 20–129 (for FOB sales).

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The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.34 The first of those two practices favours the buyer who does not wish to wait until the goods arrive at the discharge port to find out whether the goods discharged are, in reality, the goods bought. By that time, risk will have passed to the buyer (on shipment); and, even more importantly, payment will already have been made (typically against tender of the documents). Consequently, the buyer wants at least to have had sight of a document issued by a reputable and independent third party making statements about the specific attributes, labelled through any of the names referred to at paragraph 6.33, stipulated for in the sale contract. The inspection certificates tendered, whether in a cash against documents sale or whether under a letter of credit, must comply with any documentary requirements stipulated for in the sale contract or the letter of credit. Thus, for example, if the sale contract required the inspection or survey certificate to be signed by two surveyors rather than one, then the certificate tendered needs to be signed by two surveyors, failing which the seller is in repudiatory breach95.

6.32

The second of the two practices mentioned above (namely, clauses making inspection certificates ‘final’) is a practice favouring the seller. This practice is typically embodied in so-called ‘certificate final’ clauses in sale contracts, which are designed to ensure that, once the relevant certificate is issued, the buyer can no longer complain that the goods were not in such condition on loading. (Whether they achieve that effect in practice is more debtable, as we now explain.)

6.33

Certificate Final Clauses The Purpose of Certificate Final Clauses It is common in international sales contracts to find clauses that stipulate that, as long as the seller tenders a quality or survey certificate stipulated to be ‘final’ as between the parties, then that will satisfy the seller’s physical obligations in those respects for which the parties have agreed that the certificate will be final. There are two views that may be taken about such clauses. The first is that they are clauses freely agreed by commercial parties to bring finality to disputes as to the quality of goods shipped, thus avoiding unnecessary cost in pursuing quality disputes96. The other is that they are, in effect, exclusion clauses seeking to deprive the buyer of remedies for breach of some of the most fundamental physical duties imposed by a contract of sale on the seller. The courts have, through a

95 See Benjamin on Sale of Goods (10th Edition) at paras 20–112 to 20–113. 96 ‘… the business purpose is to avoid disputes about quality, and that purpose is defeated unless it is made difficult for a part to go behind a valid certificate’: see Cairns LJ in Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11 at 14; and ibid at 15: ‘For the sake of achieving certainty in the great majority of cases, it is worth while to take the risk that occasionally a wrong decision will be given and that there will no means of reconsidering it’. See also The Mercini Lady [2011] 1 Lloyd’s Rep 442 at [44], where Rix LJ was anxious to ensure that the implication of an additional term extending quality obligations beyond shipment did not render such clauses ‘a snare and a delusion’.

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6.35 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped series of devices to which we shall come presently, sought to strike a sophisticated balance between these conflicting views and interests. The Ambit and Intended Effect of Such Clauses 6.35

A ‘certificate final’ clause can be drafted in narrow or wide terms: thus it can seek to make a certificate final only, say, as to quantity; or it can go wider and purport to make a certificate final as to quantity, moisture content or other specification; or the clause can in broad terms make the certificate final in generic terms as to quantity and quality. The more widely a ‘certificate final’ clause is drafted or interpreted, the greater the protection it affords the seller – and, if the clause is enforced, the contract consequently comes closer to being a contract for the sale of documents rather than one for the sale of goods covered by documents. This is because the effect of a ‘certificate final’ clause, at any rate of one successfully drawn and interpreted in wide terms, ensures that, as long as a surveyor at the port of shipment has been satisfied that the quality and/or quantity of the goods matches the sale contract, the parties have excluded remedies which the buyer might otherwise have for breach of the seller’s physical duties to ship goods of the contract quality97. Where such a certificate final clause is enforced, the seller discharges their responsibilities towards the buyer by presenting documents agreed to be final as between the parties, whether or not the seller actually shipped goods of the contract quality. The buyer is then left to seek recovery from the carrier for any discrepancy between the goods as described in the sale contract and the goods discharged. The danger for the buyer is that whether they can, indeed, recover from the carrier for such losses will depend on a number of variables, like the carrier’s solvency, the buyer’s title to sue the carrier on the contract of carriage, and, above all, whether the losses of which the buyer complains can be proved (normally through recourse to the bill of lading) to have occurred after shipment of the goods, ie after the carrier has become responsible for the safe keeping of the goods. In effect, a successfully drafted ‘certificate final’ clause puts on the buyer the risk of losses, at any rate for discrepancies covered by the clauses, which existed before the goods were shipped – thus perverting the normal default position in shipment sales that risk only passes to the seller on shipment. Thus, for example, if a contract stipulates for no more than 0.5% moisture content, ‘certificate final as to moisture’, and the seller tenders a certificate to that effect, then the tender of the certificate, whether that certificate be accurate or not98, discharges the seller’s physical duty to ship goods containing 97 In The Mercini Lady, Rix LJ put it thus at [2011] 1 Lloyd’s Rep 442 [40]: ‘… a clause for conclusive inspection and determination on loading replaces or redefines the implied terms as to quality pro tanto’. 98 Toepfer v Continental Grain [1974] 1 Lloyd’s Rep 11, where the surveying agency later admitted that there was an error in the certificate issued by its inspector. The buyer would have a direct action against the surveying company in case of negligence: see Lord Denning MR in Toepfer [1974] 1 Lloyd’s Rep 11 at 14 and The Kriti Palm [2007] 1 Lloyd’s Rep 555. ‘Even a third party in chain may have remedies against a negligent certifier, in tort rather than in contract’: see Rix LJ in The Kriti Palm at [339].

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The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.37 less than 0.5% moisture, even if the goods were shipped containing 1% moisture and even, it would appear, ‘if the seller acknowledges that the goods are of inferior to contractual quality’99, and even if such inferiority is recorded in the bill of lading. The physical duty is, as it were, crystallised at the time the certificate is issued and is subsequently superseded by a purely documentary duty; and the greater the ambit of the ‘certificate final’ clause, the smaller the ambit of the seller’s physical duties. The seller’s other physical duties (for example, the duty to ship goods at all, the duty to make timely shipment, or to ship at a particular port in an FOB contract) subsist, but the physical quality requirement is conclusively satisfied once a certificate has been issued saying that the goods are of such quality and/or description. The Legitimacy of Such Clauses in Statute Statute affords the buyer no protection against certificate final clauses. Section 55 of SOGA 1979 makes it clear that ‘[w]here a right, duty or liability would arise under a contract of sale of goods by implication of law, it may … be negatived or varied by express agreement…’ and a ‘certificate final’ clause provides just such an ‘express agreement’ that no evidence of breach as to an attribute covered by the clause is admissible. In terms of SOGA 1979, this is the case even if the discrepancy between the goods shipped and the goods promised goes to an obligation implied by the Act itself, for example the condition implied by SOGA  1979 s  13 that goods sold by description must comply with that description. Moreover, the weaponry normally made available by the Unfair Contract Terms Act 1977 to strike down exclusion clauses100 does not operate in the context of ‘international supply contracts’101. Accordingly, it has been left to the courts to circumscribe these clauses as best they can so as to hold the ring between, on the one hand, the freedom of parties to come to their own agreements and, on the other, the risk of rendering nugatory the buyer’s legitimate expectation that the seller will ship what they said they would ship.

6.36

Judicial Attitudes to Such Clauses While giving some effect (or perhaps lip service) to the parties’ clear intention to make certificates final following the incorporation of ‘certificate final’ clauses, the courts have pursued three routes affording some protection to buyers: (1)

they have declared there to be a distinction between matters going to the ‘description’ of the goods (ie cows versus sheep) and their ‘quality’ (ie how good are the sheep), with certificate final clauses being permissible to making final issues relating to quality but not description;

99 See the dissenting judgment of Rix LJ in The Kriti Palm [2007] 1 Lloyd’s Rep 555 at 608. 100 Exclusion clauses are widely enough defined by section 13 of the 1977 Act to include any clauses ‘excluding or restricting rules of evidence’: a ‘certificate final’ clause, it is submitted, is a clause which would exclude the normal rule of evidence which would oblige and allow an aggrieved buyer to prove breach by the seller of their duty to ship goods of the contract description. 101 See UCTA 1977 s 26 and Air Transworld v Bombardier Inc [2012] 1 Lloyd’s Rep 349.

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6.38 The Bill of Lading is Tendered as a Receipt for the Goods That Have Been Shipped (2)

they have been rigorous in requiring strict compliance with agreed methods of testing; and

(3)

they have also held the clauses to be inapplicable in cases of fraud.

Description/Quality 6.38

First, the courts, perceiving certificate final clauses to be in effect exclusion clauses102, have been careful to construe ‘certificate final’ clauses strictly according to their terms, making sure that the relevant certificate is considered to be final only as to the particular attribute in respect of which the clause grants the certificate finality103. They have, in particular, been careful to deprive the clause of impact upon the implied condition that goods sold by description must comply with the description: in effect, description is the last to go. Thus, while in Toepfer, the case marking the high-watermark for the applicability of these clauses, Lord Denning MR found ‘unhelpful’ ‘a learned discussion on the difference between “quality” and “description”’104, that distinction figures heavily in later cases. Thus, in the Bow Cedar, a clause making ‘weight and quality final at loading as per certificate of independent surveyors nominated by sellers’ was corralled safely away from description and restricted to quality: ‘… it seems to me plain on the ordinary meaning of the words, that the certificates were to be final as to the sort of matters that are covered by the quality clause, … and not as to the [type of] commodity itself ’105. Moreover, Lord Diplock in the House of Lords in Gill & Duffus SA v Berger & Co Inc106 managed to construe (or to re-construct) the Court of Appeal’s decision in Toepfer thus: ‘What Toepfer v Continental Grain decided was that where the description of the goods agreed to be sold included a statement as to their quality and provided that a certificate as to quality was to be final, the certificate was final as to the correspondence of the goods with that part of the description of them that referred to their quality … notwithstanding that that the certificate was proved to have been inaccurate.’ (emphasis added) The result is to limit the finality imposed by the clause to quality rather than description, leaving unaffected a buyer’s remedies for breach of the seller’s duty to

102 Not all judges have been comfortable regarding ‘certificate final’ clauses as exception clauses: see Cairns LJ in Toepfer [1974] 1 Lloyd’s Rep 11 at 14, ‘I see no grounds for saying that a provision of this kind should be construed with some special degree of strictness. It is not like an exceptional [sic] clause which is designed to give protection to one party’. 103 Thus, for example, a clause stipulating that a certificate is to be final as to moisture content will not be final, say, as to the maximum content of foreign matter. On the other hand, it is suggested that, where a clause stipulates that a certificate is to be final as to quality, then a certificate stating that the goods are ‘of good quality’ or ‘sound and merchantable’ will be final as to all aspects of quality, at any rate as to those specifications expressly set out in the contract. 104 See [1974] 1 Lloyd’s Rep 11 at 13. 105 [1980] 2 Lloyd’s Rep 601 at 604. 106 [1984] 1 Lloyd’s Rep 227 at 233.

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The Bill of Lading Must Say Certain Things About the Goods for it to be Good Tender 6.41 ship goods complying with their description, that duty being too fundamental to be excluded by the clause107. Method of Sampling or Testing Secondly, where the clause predicates finality on a stipulated method of sampling or testing, then the courts have insisted that there be no departure from the stipulated method, other than one which could fairly be described as trivial or de minimis, for the certificate to be treated as final108.

6.39

Fraud Thirdly, while there is no reported case where a certificate has been struck down for fraud, in accordance with common law principles, where there is evidence that the certificate has been procured by fraud, then in these authors’ views it cannot be held to be final, or indeed as having any evidential effect, as between the parties (unless there is an express waiver for fraudulent representations in the sale contract, which is highly unlikely)109. We suggest that the buyer can escape from a certificate final clause if it establishes that the inspector or surveyor issuing the relevant certificate either knew it was inaccurate or if they were reckless as to whether the certificate was or was not accurate; the applicable test will, in other words, be the usual test for deceit or fraudulent misrepresentation in Derry v Peek.

6.40

Contractual Routes out of Certificate Final Clauses Faced with sellers seeking to avoid their responsibility for shipping goods of the contract quality through certificate final clauses, buyers have sought to counter-attack through exceptions to the exclusion clauses, as it were. Wording is frequently added by buyers to the end of certificate final clauses such as ‘fraud and manifest error excluded’. The reference to ‘fraud’ in such clauses raises the same difficulties as have just been alluded to – and should, in our view, connote the same Derry v Peek test. 107 In effect, the judges are here preventing ‘certificate final’ clauses from doing that which SOGA 1979 s 55 explicitly allows them to do in s 55: see para 1.12 above. This is consistent with a judicial attitude requiring extremely clear words for conditions to be excluded: see Rix LJ in The Mercini Lady [2011] 1 Lloyd’s Rep 442 at 454: ‘… there has also been a judicial consensus that such obligations can only be excluded by language which expressly (or perhaps one may add which must necessarily be taken to) refer to conditions’. See also The Union Power [2012] EWHC 3537 (Comm) at [81]. It is doubtful, however, whether the word ‘conditions’ needs actually to be used if the words used by the parties are fairly susceptible of only one meaning, ie  that remedies for breach of conditions were intended by the parties to be excluded: see Air Transworld Ltd v Bombardier Inc [2012] 1 Lloyd’s Rep 349 at [27]. 108 Veba Oil v Petrotrade [2002] 1 Lloyd’s Rep 295. 109 Lord Denning MR appeared to anticipate such an exception in Toepfer [1974] 1 Lloyd’s Rep 11 at 14 where he appeared to suggest that their decision to enforce the ‘certificate final’ clause might have been different had there been a suggestion of fraud or collusion. Clauses sometimes make express provision for the fraud exception: see clause 12 in The Mercini Lady [2011] 1 Lloyd’s Rep 442.

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Chapter 7

Tender of the Bill of Lading as a Contract of Carriage

THE BILL OF LADING IS EVIDENCE OF THE TERMS OF THE CONTRACT OF CARRIAGE 7.1 TERMS OF THE CARRIAGE CONTRACT PURCHASED BY THE BUYER7.3 THE SELLER HAS A DUTY TO PROCURE FOR THE BUYER A CONTRACT OF CARRIAGE 7.8 THE BILL OF LADING MUST PROVIDE CONTINUOUS DOCUMENTARY COVER TO THE DESTINATION PORT AGREED IN THE SALE CONTRACT 7.13 (a) Most Bills of Lading Give the Carrier the Liberty to Deviate 7.14 (i) Where the Sale Contract Requires Direct Shipment 7.14 (ii) Where the Sale Contract Does not Require Direct Shipment 7.15 (b) The Carrier’s Liberty to Stow the Cargo on Deck 7.21 (c) Transhipment 7.26 (i) Where the Sale Contract Allows Transhipment 7.27 (ii) Where the Sale Contract Prohibits Transhipment 7.28 (iii) Where the Sale Contract is Silent as to Transhipment 7.29 (iv) Transhipment and Letters of Credit 7.30 (d) Bills of Lading With Stipulated Destination Different to Stipulated Sale Contract Destination 7.31 (e) Freight Collect Bills of Lading 7.33

THE BILL OF LADING IS EVIDENCE OF THE TERMS OF THE CONTRACT OF CARRIAGE It is the seller who normally procures the issue of a bill of lading. However, it is the buyer who, through the operation of COGSA 19921, will look to the bill of lading2 both for their right to sue the carrier for short-delivery or damage to cargo and, at any rate where the buyer has not chartered the vessel carrying the 1 See Chapters 2 and 4 above. 2 Or to the terms of the ship’s delivery order or to those of the sea waybill: see COGSA 1992 s 1(3)–(4).

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7.2

Tender of the Bill of Lading as a Contract of Carriage

goods3, for the regime applicable to such an action. Given the stake the buyer has in the bill of lading as a contract of carriage, the buyer will wish the seller to obtain from the carrier the most favourable terms possible: at the very least, the buyer will expect the seller to procure a contract of carriage ‘on usual terms’4 or on terms which are ‘reasonable having regard to the nature of the goods and other circumstances of the case’5. 7.2

Because bills of lading are frequently seen by the buyer, or where there is a letter of credit in place by a bank, before the goods reach their destination, any defects in the bills (or, in letter of credit language, ‘discrepancies’) can be used by the buyer to avoid their duty to pay, or at any rate to pay the full price stipulated for in the contract, on the basis that the seller is in breach of the sale contract. Documentary defects therefore give the buyer considerable leverage against the seller in the context of a falling market – and the seller needs to know what types of contractual term in its carriage contract might expose it to peril under its sale contract.

TERMS OF THE CARRIAGE CONTRACT PURCHASED BY THE BUYER Where the Buyer is a Lawful Holder of a Bill of Lading or a Named Consignee on a Waybill: COGSA 1992 7.3

Where the buyer derives their rights of suit against the carrier through being a lawful holder of a bill of lading or through being a named consignee on a sea waybill6, the buyer shall 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’7. The phrase ‘contract of carriage’ is defined in relevant part in section 5 as ‘the contract contained in or evidenced by that bill [of lading] or [sea] waybill’. The use of the alternatives ‘contained in’ or ‘evidenced by’ may appear confusing. Which is it to be: ‘contained in’ such that the only terms of which the buyer takes the benefit through section 2(1) are the terms in the bill of lading; or ‘evidenced by’ such that the buyer could take the benefit of all the terms agreed between the seller and the buyer, whether such terms are written into the bill of lading or not? There is no evidence in the Law Commissions’ Report accompanying the COGSA  1992 as a Bill that it was the intention of the Law Commissions to alter the existing law on this issue. It must, therefore, be assumed that the phrase ‘contract of carriage’ was defined in the alternative as that ‘contained in 3 4 5 6 7

In which case, their contract with the carrier is contained in the charterparty: The President of India v Metcalfe Shipping Co Ltd [1970] 1 QB 289. See Chapter 8 below. See Incoterms 2000 CIF A4, A8. See, for example, The Devon [2004] 2 Lloyd’s Rep 282, especially at [26] per Mance LJ. See SOGA 1979 s 32(2). See COGSA 1992 ss 2(1), 1(2) and (3). See COGSA 1992 s 2(1).

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7.4

or evidenced by’ the bill of lading or sea waybill in order to accommodate the pre-existing common law which distinguished between two relationships: that between the shipper and the carrier, where the contract of carriage was evidenced by the bill of lading; and that between the transferee of the bill of lading and the carrier, where the contract of carriage was contained in the bill of lading8. It, therefore, remains necessary, despite the enactment of COGSA 1992, to examine the common law position regarding the whereabouts of the terms of the contract of carriage in either of these two situations.

The Contract of Carriage Between the Shipper and the Carrier As between the seller (as shipper) and the carrier, the bill of lading is excellent evidence of the terms of the contract of carriage: that contract may, however, contain other terms which were not recorded on the bill of lading but which are nonetheless binding as between these two parties. The reason for this, at first sight, somewhat surprising proposition9 has to do with two basic propositions of general contract law, namely, that bilateral contracts are concluded on the exchange of mutual promises and that contracts generally need no written record for their validity. Thus, contracts of carriage, in common with most other contracts10, may be made without any written record. Although most contracts of carriage will involve the issue of a bill of lading, a document which, as we have seen, performs other essential functions, the general contract rule of informality still means that, ‘the issue of the bill of lading does not necessarily mark any stage in the development of the contract’11. The contract of carriage will, indeed, have typically been concluded some time before the issue of the bill of lading12, which is normally issued after the goods are shipped. Consequently, if, prior to the issue of the bill of lading, the shipper and the carrier agree to terms, whether orally or in a written booking-note, which they do not include in the bill of lading, the parties are nonetheless bound by such terms, which are no less part of their contract although not part of the bill of lading. Thus, in The Ardennes13, an oral agreement made prior to the issue of the bill of lading, that a cargo of mandarin 8 9

10 11 12

13

See COGSA 1992; FMB Reynolds, at [1993] LMCLQ 436 at 441. For, surely, most shippers and carriers would expect the terms of their contract to be contained exclusively in the bill of lading. Likewise, most carriers would expect a person named as ‘shipper’ on a bill of lading to be the contractual shipper. This may, however, not be the case in certain fact situations: see The Nortrader [2020] EWHC 1371 (Comm), where the ‘shipper’s’ name was entered by an agent without authority so to complete a bill of lading. For the exceptions, see Chitty, Chapter 4 generally and, in summary, paras 4.001–4.003. Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402 at 409, per Devlin J. The precise moment of conclusion of the contract of carriage will depend on the facts of each situation: the latest moment at which the contract may be said to exist is clearly the time of shipment of the goods; on the other hand, there is no reason to suppose that it might not have been concluded at a far earlier, and less formal, stage, for example, when space was booked by telephone: see C Debattista, ‘The Bill of Lading as the Contract of Carriage – A Reassessment of Leduc v Ward’ [1982] 45 MLR 652 at 652–3. [1951] 1 KB 55.

175

7.4

7.5

Tender of the Bill of Lading as a Contract of Carriage

oranges would be shipped without deviation, was held to prevail over a term in the bill giving the carrier a liberty to deviate. Once a stipulation expressly disallowing deviation had been agreed between the parties, then nothing in the standard form of a bill of lading subsequently issued could alter that agreement14. Presumably, though, where the prior agreement, recorded for example in a booking-note, expressly stipulates that the terms of the contract of carriage are to be those contained in the bill of lading which is to prevail in case of inconsistency with the booking-note, the terms of the contract of carriage between the shipper and the carrier are those contained in the bill of lading.

The Contract of Carriage Between the Carrier and the Transferee of a Bill of Lading is Contained in the Bill of Lading 7.5

As between the buyer (as receiver of the goods) and the carrier, the bill of lading is the contract in the sense that it alone contains the contractual terms between those parties15, thus excluding any terms agreed to between the shipper and the carrier outside the bill. The reason for the rule is quite clear: the buyer only has notice of those terms recorded on the bill and to affect the buyer with any others would violate the fundamental principle of general contract law that express terms have contractual force only if they are notified to either party before or at the time of the conclusion of the contract16. Thus in Leduc v Ward17, a carrier was sued by an endorsee for non-delivery in circumstances which the carrier pleaded came within an exclusion clause; the plaintiff alleged deviation by the carrier which, on the law as it then stood18, would have deprived them of the protection of all exclusion clauses. The carrier argued that there was no deviation because the route taken on the voyage had been expressly and orally agreed to by the shipper in a 14 See, for an illustration of the same rule in circumstances where the prior agreement was itself written rather than oral, Moss Steamship Co Ltd v Whinney [1912] AC 254. 15 At any rate in the absence of a charterparty. We shall see in Chapter 8 that, where the buyer is a charterer, the buyer’s contract of carriage is contained in the charterparty rather than the bill of lading, which is a mere receipt. Moreover, where a bill of lading incorporates terms from a charterparty, it is clear that the ‘bill of lading terms’ also include those terms in the charterparty which are successfully incorporated: see Chapter 8. 16 Olley v Marlborough Court [1949] 1 KB 532. The rule does not always work to the buyer’s advantage. Thus, on the facts of The Ardennes [1951] 1 KB 55, had the action been brought by an endorsee of the bill of lading rather than by the shipper, the endorsee would doubtless have rather preferred to have inherited from the shipper the special term disallowing deviation than the bill of lading term which did not. 17 (1888) 20 QBD 475. 18 See now Photo Production v Securicor [1980] AC 827; The Antares (Nos 1 & 2) [1987] 1 Lloyd’s Rep 424; and State Trading Corporation Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep 277; see also M Clarke ‘Fundamental Breach of Charterparty’ [1978] LMCLQ 472; C P Mills ‘The Future of Deviation in the Law of Carriage of Goods’ [1983] LMCLQ 587; C Debattista ‘Fundamental Breach and Deviation in the Carriage of Goods by Sea’ 1988 JBL 22; and C Debattista, S Baughen ‘Does Deviation Still Matter’ [1991] LMCLQ 70. See generally The Kapitan Petko Voidoda [2003] 2 Lloyd’s Rep 1 reviewing the law relating to geographical deviation in the context of cargo carried on deck and the availability of exclusion clauses. See also The Sur [2018] EWHC 1673 (Comm).

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Terms of the Carriage Contract Purchased by the Buyer

7.6

stipulation not recorded on the bill. The Court of Appeal, however, held that that stipulation was not part of the contract between the endorsee and the carrier19; that as between those parties, the route taken was outside that allowed in the bill of lading; and that consequently, the carrier had deviated their way out of the exclusion clauses in the bill of lading20. By the same token, waiver of the carrier’s deviation by the seller does not affect the buyer of the goods, who retains the right to terminate the contract of carriage forfeited by the seller21.

The Contract of Carriage Between the Carrier and the Named Consignee on a Sea Waybill Sea waybills are primarily intended for use where there is no intention to sell the goods on while they are in transit22 (see Chapter 2). Moreover, in the absence of any contrary stipulation in the document itself, the carrier is entitled to deliver the goods to the named consignee without presentation of the document23. We also saw nonetheless that, although the buyer does not need the document to gain access to the goods, they may well want the document in order to have a record of what was shipped and of the terms upon which they had been carried24. The contract of sale may well, therefore, expressly provide for tender of a sea waybill25 and, where such a document is tendered in this way, it is suggested that the terms of the contract of carriage between the consignee and the carrier are only those contained in the sea waybill and this for the same reasons given in the context of bills of lading at paragraph 7.5 above. A difficulty arises where the sea waybill is not transferred to the buyer: does the consignee here have transferred to them the rights of suit contained in the sea waybill or those evidenced by the sea waybill, such that terms agreed outside the sea waybill between the carrier and the shipper would also affect the rights of the 19 On one reading, the ratio of the case is actually wider than the text suggests: it appears from parts of the judgments that the members of the court felt that the bill of lading contained all the terms of the contract of carriage, even as between the carrier and the shipper of the goods: see C Debattista ‘The Bill of Lading as the Contract of Carriage – A Reassessment of Leduc v Ward’ [1982] 45 MLR 652, particularly 660. If this is correct, then it is undesirable in the sense that it would make suspect the decision in The Ardennes [1954] 2 QB 402. 20 For further illustrations of the same principle, see The Royal Exchange Shipping Company Limited v W J Dixon & Co (1886) 12 App Cas 11, where a buyer was not affected by the seller’s agreement with the carrier that goods could be stowed on deck; and The El Amria and the El Minia [1982] 2 Lloyd’s Rep 28, where a contract between the shipper and the carrier containing a jurisdiction clause different to that stipulated in the bill of lading was held not to avail the bill of lading holders. 21 Hain Steamship Co v Tate & Lyle Ltd [1936] 2 All ER 597 at 602–3 and 608–9; see also Benjamin, para 18–106. 22 See para 2.33. 23 See paras 2.36–2.38. 24 See para 2.36, fn 100. 25 Incoterms 2020, CIF, A6 implicitly envisages the tender of a sea waybill when it says that the documents tendered must ‘enable the buyer to claim the goods from the carrier at the port of destination’.

177

7.6

7.7

Tender of the Bill of Lading as a Contract of Carriage

consignee? We suggest that, here too, the effect of the Act is that the buyer’s rights against the carrier are those contained in the sea waybill, to the exclusion of terms agreed between the carrier and the shipper26. Moreover, given the identification of straight bills of lading with sea waybills in COGSA 199227, the same would seem to follow where the document covering the goods is a straight bill of lading rather than a document calling itself a sea waybill.

Where the Buyer is a Person Entitled to Delivery Under a Ship’s Delivery Order 7.7

Delivery orders are typically used where a seller needs to tender different documents to different buyers when selling different parcels of a cargo shipped in bulk (see Chapter  2)28. Given the commercial context within which such documents are used, it is not surprising to find the Act referring the buyer for their rights of suit against the carrier to the bill of lading, the parent document, as it were, which initially spawned each delivery order. Indeed, delivery orders will typically expressly incorporate the terms of the bill of lading and where that is the case, the Act simply reflects the position as it had been previously understood to be. On the other hand, it had, prior to the Act, long been clear that where the terms on the bill of lading were not incorporated into the delivery order, then the buyer could not take advantage of the terms of the bill of lading29. The wording of the relevant part of the definition of ‘contract of carriage’ in COGSA 1992 s 5 is now, however, wide enough to make it arguable that the terms of ‘the contract under or for the purposes of which the undertaking contained in the order is given’, typically the bill of lading, will define the buyer’s rights of suit against the carrier whether or not those terms are expressly incorporated into the delivery order.

THE SELLER HAS A DUTY TO PROCURE FOR THE BUYER A CONTRACT OF CARRIAGE 7.8

The seller must provide for the benefit of the buyer a contract of carriage which complies with any express terms describing that contract in the contract of sale. The nature of the seller’s duty regarding the contract of carriage raises three less obvious points. First, what are the seller’s general duties regarding the contract of carriage to be procured in situations where the sale contract contains no express terms about that contract, at any rate regarding any particular matter complained of by the buyer? Secondly, when we say that the seller must procure a reasonable contract of carriage for the benefit of the buyer, do we mean that the seller guarantees successful recovery in any cargo claim which the buyer might 26 27 28 29

But cf Benjamin, para 18–199. See paras 2.39–2.42. See para 2.46. Colin & Shields v W Weddel & Co Ltd [1952] 2 Lloyd’s Rep 9 at 17 and 19.

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The Seller has a Duty to Procure for the Buyer a Contract of Carriage

7.10

eventually bring against the carrier? Thirdly, how may the buyer best ensure that the seller has complied with their duties under the contract of sale to make a contract of carriage complying with that contract of sale?

Express Terms in the Sale Contract Contracts of sale will frequently stipulate in express terms that the contract of carriage procured by the seller must comply with stated requirements. Thus, for example, it is common to find terms in the contract of sale insisting that the goods be shipped upon vessels under a given age, or excluding vessels flying certain flags, or upon vessels which have carried clean cargoes in a given number of preceding trips. Some of these terms may be incorporated into the parties’ special contract from standard forms30. It is clear that, where a sale contract contains such express terms, the contract of carriage procured by the seller for the benefit of the buyer must comply with those terms31 or the buyer is entitled to reject the bills of lading procured and may refuse to pay the price.

7.9

A Reasonable or Usual Contract of Carriage A contract of sale is never silent about the contract of carriage to be procured by the seller for the benefit of the buyer. For example, a CIF sale contract will always contain a term giving the agreed destination of the goods and the contract of carriage must provide for discharge at that destination32. However, a buyer may wish to argue that the contract of carriage procured by the seller did not comply with the seller’s obligations regarding the contract of carriage to be tendered (and that the seller is therefore in breach under the sale contract). Thus, for example, a buyer whose goods have been discharged in a damaged state, contaminated by the cargo next to which it was stowed, may wish to avoid the risk of transit loss in circumstances where their remedy against the carrier is impractical because, for instance, the carrier is not worth suing in an accessible jurisdiction. Can the buyer recover against the seller on the ground that the contract of carriage that the seller procured for the benefit of the buyer should, for these particular goods, have imposed upon the carrier an express duty to stow the goods away from the type of goods which contaminated the buyer’s goods? This immediately raises the question: what is the seller’s default duty regarding the contract of carriage to be procured for the buyer?

30 See, for example, FOSFA 54 lines 31–33, which impose upon the seller an obligation to ship the goods on vessels which comply with the ‘FOSFA International Qualifications and Operational Procedures for All Ships Engaged in the Ocean and Short Sea Carriage and Transhipment of Oils and Fats for Edible and Oleo-chemical Use in force at the date of the Bill of Lading’. 31 Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep 440: see para 7.14 below; and see Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s Rep 398 at 400–2. 32 See paras 7.14–7.20 below.

179

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7.11

Tender of the Bill of Lading as a Contract of Carriage

Section 32(2) of the Sale of Goods Act 1979 may be a useful weapon in the hands of the buyer in these type of circumstances33: ‘Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in the course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.’ Care, however, should be taken before buyers use the section too readily. Although the courts have, on occasion, allowed recovery against the seller in the absence of express terms imposing specific obligations on the seller regarding the carrier’s obligations under the contract of carriage34, the courts will not lightly write into a sale contract a term which an aggrieved buyer might have themselves negotiated with the seller when drafting the contract of sale.

There are Limits to the Seller’s Duty to Procure a Carriage Contract 7.11

In the absence of express requirements in the sale contract, the carriage contract must be concluded on ‘reasonable’35 terms, rather than on terms which will necessarily guarantee the buyer success in litigation against the carrier or on terms which ensure recovery against the carrier for the buyer’s full loss. So long as the contract of carriage procured for the buyer provides the buyer with an enforceable contract, the seller will have discharged this part of their responsibilities towards the buyer36. 33 See paras 4.17–4.18. 34 Thus, see Ranson v Manufacture d’Engrais (1922) 13 Ll L Rep 205, where Greer J allowed recovery in damages for breach of an implied term that goods would be carried on a steamship rather than a sailing ship, carriage on the former type of vessel having been found to be usual for the type of cargo sold. The report gives no indication that the sale contract stipulated for the tender of a bill of lading on usual terms; nor that SOGA 1893 s 32(2) was used as the basis for the implication of the term by the judge. See, in the same sense, Finska Cellulosaforeningen v Westfield Paper Company Ltd (1941) 46 Com Cas 87, particularly, on this point, at 91–93, where a war risk clause was held to be usual, the duty to tender a usual bill of lading being implied sub silentio. See also The Intan 6 V.360A SN [2003] 2 Lloyd’s Rep 700, particularly [26]–[27], where at [27] Judge Havelock-Allan says that ‘[t]here is a strong case for saying that, in the absence of express agreement, a bill of lading which is not usual or customary in the trade, is not a valid tender under a CIF or C&F sale, whether or not the defect is clear from the document itself ’. The decision was concerned not with whether the contract of carriage tendered was contractual, but with whether the seller’s notice of appropriation was valid. 35 The time at which the particular term in the bill under scrutiny must be usual or reasonable is the time of shipment rather than the time of the sale contract: see, as to the reasonableness of the route taken, Tsakiroglou & Co v Noblee Thorl GmbH [1961] 2 All ER 179 at 185I–186B. 36 See The Galatia [1979] 2 Lloyd’s Rep 450 at 456, per Donaldson J, who regarded the seller as being under a duty to tender an ‘enforceable’ contract of carriage; approved by the Court of Appeal at [1980] 1 Lloyd’s Rep 45. If this thinking is fast-forwarded to post-COGSA 1992, it would seem to

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7.13

Stipulating for Specific Carriage Terms in the Sale Contract A  buyer concerned about aspects of the contract of carriage should stipulate in the contract of sale that the contract of carriage should impose upon the carrier duties regarding those aspects. This is particularly relevant given the limits of – and, indeed, the uncertainties surrounding – the seller’s duty to procure a reasonable or usual contract of carriage37. Thus, for example, if carriage of the goods on a vessel under a certain age is crucial to the buyer, the best guarantee that the goods will be carried on such a vessel – and more importantly, that there will be effective remedies for the buyer against the carrier if they are not – is for the contract of sale expressly to stipulate that the seller will procure a contract of carriage stipulating for goods on such a vessel. Moreover, the buyer would be best advised to translate this duty in the sale contract into a documentary duty. Payment in international trade is normally made against documents, either directly or through the banks under letters of credit. Thus the goods may well arrive – or worse still not arrive – on an over-age vessel by the time the buyer has paid against documents. It is in the buyer’s interests, therefore, to draft a term in the sale contract not only imposing a duty on the seller to ship the goods on a vessel under a certain age, but also to tender a certificate attesting to the age of the vessel38. Only then can the buyer ensure that performance of terms in the contract of sale regarding the contract of carriage can be monitored and scrutinised at the moment which matters most, namely the time of payment.

7.12

THE BILL OF LADING MUST PROVIDE CONTINUOUS DOCUMENTARY COVER TO THE DESTINATION PORT AGREED IN THE SALE CONTRACT There is one feature of the contract of carriage which is constant: the contract of carriage must give the buyer rights enforceable against the carrier in respect of the

follow that a seller owes the buyer a duty to tender a bill of lading so made out and/or endorsed as to trigger the operation of COGSA 1992. In most instances, such a duty would be expressed through a term in the sale contract requiring the tender of a bill of lading made out or endorsed to the buyer. The interesting point is whether, in the absence of such an express stipulation in the sale contract, a duty in these terms is implied upon the seller by SOGA 1979 s 32(2): it is suggested that such an implied term ought to be implied through section 32(2) of SOGA 1979. 37 Thus, for example, it is not entirely clear whether, in the absence of an express term, the seller owes the buyer a duty to contract for carriage on a seaworthy vessel or on a vessel belonging to a commercially solvent owner: would the seller be in breach, if at all, only if they knew of the unseaworthiness or the insolvency at the time they concluded the contract of carriage? It is arguable, at any rate in the case of unseaworthiness, that so long as the bill of lading provides the buyer with the usual remedies against the carrier for this breach of the contract of carriage, the seller is not in breach of the sale contract. 38 Where there is a letter of credit, this term should also, of course, be transplanted into the letter of credit.

181

7.13

7.14

Tender of the Bill of Lading as a Contract of Carriage

whole voyage, from the port of loading to the port of destination39. Consequently, a contract of carriage which fails to afford the buyer such continuous documentary cover against the carrier is not a contract of carriage on usual or reasonable terms and can consequently be rejected by the buyer. In Hansson v Hamel & Horley40, Lord Sumner said41: ‘When documents are to be taken up the buyer is entitled to documents which substantially confer protective rights throughout. He is not buying a litigation … These documents have to be handled by banks, they have to be taken up or rejected promptly and without any opportunity for prolonged inquiry, they have to be such as can be re-tendered to sub-purchasers, and it is essential that they should so conform to the accustomed shipping documents as to be reasonably and readily fit to pass current in commerce.’ Thus in that case, tender by the seller of a bill of lading covering only the second leg of a voyage during which goods were transhipped was held invalid by the House of Lords.

(a)  Most Bills of Lading Give the Carrier the Liberty to Deviate (i)  Where the Sale Contract Requires Direct Shipment 7.14

Where the sale contract contains a term that shipment is to be direct42, then although there seems to be no authority precisely in point, it is suggested that the buyer can reject a bill of lading containing any form of clause giving the carrier a liberty to deviate. In Bergerco USA  v Vegoil Ltd43, a buyer was held entitled to reject goods on the grounds that they had not been shipped on a ‘contractual ship’44: the parties had agreed that shipment would be direct to Bombay, whereas the vessel on which the cargo was loaded was actually scheduled to call at several intermediate ports. The case does not take quite the same question we are asking 39 This is notwithstanding that what makes a contract of carriage reasonable or usual under a particular contract of sale will vary with the goods sold and with other circumstances peculiar to each contract of sale. 40 [1922] 2 AC 36. See also, generally, Glencore v Bank of China [1996] 1 Lloyd’s Rep 135. 41 [1922] 2 AC 36 at p 46. 42 A  good number of standard term contracts of sale do quite the opposite, that is to say they expressly reserve to the seller the right to organise shipment direct or indirect: see, for example, GAFTA 100, clause 8: ‘Shipment from … direct or indirect’. Judging by the cases which have come before the courts on this point, buyers stipulating for direct shipment have only done so by way of a special addition to the standard form used, sometimes as a quid pro quo for some indulgence allowed to the seller: thus, in Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep 440, the stipulation was extracted in return for an extension to the shipment period; again, in State Trading Corporation of India Ltd v M Golodetz Ltd [1988] 2 Lloyd’s Rep 182, the direct shipment clause was specially incorporated into the standard form: see p 183; reversed at [1989] 2 Lloyd’s Rep 277. 43 [1984] 1 Lloyd’s Rep 440, and see The Intan 6 V.360A SN [2003] 2 Lloyd’s Rep 700 [26]. 44 [1984] 1 Lloyd’s Rep 440 at 443.

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7.15

here, that is to say, whether a buyer can reject a bill of lading containing a liberty to deviate; and this for two reasons. First, the central issue in the case was whether the buyers could reject goods, rather than whether they could reject documents45; secondly, the buyers’ stated ground for rejection46 was a scheduled departure from the ‘direct’ route agreed in the contract of sale, rather than a deviation by the carrier in purported exercise of a liberty to deviate in the bill of lading. As for the first, Hobhouse J described the seller’s breach as a failure to comply with an all-or-nothing stipulation to make a contractual shipment rather than a continuing promise on the part of the seller that the carrier would not deviate47: viewed in this light, the term broken by the sellers was simply the physical parallel of their obligation to tender a contractual bill of lading, and it, therefore, seems perfectly logical to extend the principle of Bergerco to the tender of a bill of lading allowing the carrier to deviate. As for the second possible ground of distinction, this can be overstated: from the point of view of a sale contract stipulating for direct shipment, calls into port under a schedule and calls made in exercise of a liberty to deviate are quite the same thing. The decision by Hobhouse J in Bergerco48 does, consequently, lend support to the proposition that a buyer can reject a bill of lading granting the carrier a liberty to deviate where the sale contract stipulates for direct shipment49.

(ii)  Where the Sale Contract Does not Require Direct Shipment Where the contract of sale either says nothing about the route of transit or, as is quite commonly the case50, expressly gives the seller the option of shipping ‘direct or indirect’, the position is unclear. The buyer can reject a bill of lading granting the carrier a liberty to deviate where the extent of the liberty is unclear51. This, however, hardly assists with the vast majority of bills of lading where the reverse is the case: that is to say where the liberty clause is clearly carried on the reverse side of the bill of lading. Can a buyer reject such a bill of lading in the absence of express stipulation for direct shipment in the sale contract? Benjamin suggests, on the basis of the judgment of Greer J in Shipton, Anderson & Co v John Weston & Co52, that the buyer can so reject where the clause is: ‘so wide that the ship might have called anywhere she liked and almost have gone round the world before she came to the port of discharge’53. 45 The documents had, in fact, been accepted by the bank under a letter of credit: this circumstance was held not to estop the buyers from now rejecting the goods. As to this aspect of the case, see para 9.27 below. 46 The fact that the market price for the commodity involved had fallen might also, of course, have had some part to play in the buyer’s decision to reject: see [1984] 1 Lloyd’s Rep 440 at 442. 47 See [1984] 1 Lloyd’s Rep 440 at 443. 48 [1984] 1 Lloyd’s Rep 440. 49 Cf Benjamin, para 19–033, where the editors give the case as direct, rather than oblique, authority for the proposition stated here in the text. 50 See the standard form clause reproduced at fn 42. 51 Spillers Ltd v J W Mitchell Ltd (1929) 33 Ll L Rep 89. 52 (1922) 10 Ll L R 762. 53 Ibid at 763.

183

7.15

7.16

Tender of the Bill of Lading as a Contract of Carriage

On the basis of that test, a clause allowing deviation54 would clearly vitiate tender of a bill of lading; presumably rejection by the buyer would be justifiable because, in the words of Benjamin55: ‘the shipping documents “have to be taken up or rejected promptly” (Hansson v Hamel & Horley Ltd [1922] 2  AC  36 at 46) and this would not be possible if the buyer (or his bank) had to resolve such difficult questions of construction.’ This view gives cause for some concern: wide liberty clauses of the type exemplified above56 are in very common use; the seller of the goods, as shipper, has, at any rate in practice, little or no control over the terms in which they are drawn; and rejection, or its threat, by the buyer on this ground would put the seller in an impossible position against a falling market. This consideration of itself does not, of course, decide the case against the buyer’s right to reject: it does at least, though, raise the question as to whether the right to reject is necessary to safeguard the buyer’s interests against the carrier – and whether it is desirable visà-vis the seller. In our view, the law of carriage of goods by sea gives the buyer, as we shall presently see, adequate protection against the unjustified use of liberty clauses by carriers; that, had the buyer wished for a greater degree of protection, namely, had they wished for a bill of lading ruling out any deviation, then they could have stipulated such a term expressly in the contract of sale; and where they have not, they are content with the protection granted them, as receiver of the goods, by the law of carriage. The Law of Carriage Protects the Buyer Where the Sale Contract Does not Require Direct Shipment 7.16

The law of carriage of goods by sea protects the buyer against the abuse by the carrier of a liberty to deviate through three devices: the rule in Glynn v Margetson57; the residual doctrine of fundamental breach, as applied in Connolly Shaw Ltd v A/S Det Nordenfjeldske D/S58 which survives in cases of deviation in shipping; and, where COGSA 1971 applies, through the combined effect of the Hague-Visby Rules arts III.8 and IV.4. Through each of these devices, the law of carriage protects the receiver of goods against the unjustified use of liberty clauses: that protection makes it quite unnecessary further to allow the buyer a right of rejection which can easily be abused against a falling market. Turning to each protection in turn:

54 Eg by any route, direct or not, customary or not. 55 See Benjamin, para 19–033. 56 See fn 54 above. 57 [1893] AC 351. 58 (1934) 49 Ll L Rep 183.

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7.18

The Rule in Glynn v Margetson59 Under the rule in Glynn v Margetson, the courts will construe a clause giving the carrier a liberty to deviate from the contractual voyage provided for in the contract of carriage, so as not to defeat the main object and purpose of that contract. Thus, in Glynn v Margetson60 itself, a liberty clause in wide terms was held not to allow deviation to a port that was not on the route between the ports of loading and discharge. Consequently, where a buyer of a bill of lading containing a liberty clause is aggrieved by a deviation allegedly made in exercise of that liberty, their cause of action for damage or short delivery against the carrier is not defeated by the liberty clause if the actual use made of it by the carrier would defeat the commercial object of the contract of carriage. (In these circumstances, it is difficult to see why the buyer needs also to have the right to reject the documents as against the seller.)

7.17

The point made in the previous paragraph was also made in a somewhat neglected part of Kennedy J’s judgment in Burstall & Co v Grimsdale and Sons61, a case in which rejection of a bill of lading by the buyer on the ground, inter alia, that it contained a liberty clause, was held unjustified. At the relevant part of the report, Kennedy J said62:

7.18

‘Suppose, however, that the clause in the bill of lading would not, under the decision of the House of Lords in Glynn v Margetson63, allow such a thing to be done as was done in this case, namely, calling at Bremen. Even then there is nothing for these buyers to complain of as against the shippers. The buyers have on this hypothesis got a contract which is, from the mercantile point of view, an ordinary contract, and they cannot say that there has been a power given to the carriers to deviate where a deviation might possibly injure or delay the delivery. The shippers’ answer to any complaint by the buyers would be this, that the clause in the bill of lading which they, the shippers, have accepted under the through bill of lading is not a clause which enables the carriers to deviate. In other words, the shippers could say, “We have done nothing wrong in sending your goods by carriers whose contract does not entitle them as against you to deviate; therefore we have performed our duty in sending the goods, not only by a steamer destined to London, but also by a steamer that has no right to deviate.” If there is a breach of that contract of carriage by deviating the buyers would have a right of action against the carriers, but it is clear that there could be no claim as against the shippers.’

59 [1893] AC 351. See generally Carver on Bills of Lading, para 9.041. 60 Ibid. 61 (1906) 11 Com Cas 280. See also Benajmin, para 19–033. 62 Loc cit at p 291. 63 [1893] AC 351.

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7.19

Tender of the Bill of Lading as a Contract of Carriage

The decision of Kennedy J in this case has not received the exposure it deserves, explaining away as it does the shipper’s ostensible breach of a sale contract by procuring a contract of carriage including a liberty to deviate as being no breach by the shipper at all because the courts will construe such a right as against a carrier strictly and therefore there can be no right to reject the documents as against the shippers. The case has been explained away as one decided on its special facts, the liberty clause being usual and customary ‘in the trade in question’64: with respect, it is difficult to see, at any rate from the report, that the case was either argued or decided with such constrictions in mind. The case was not even cited in Shipton Anderson & Co v John Weston & Co65, which was the case upon which the buyer’s right to reject is justified in Benjamin. Stated at its very lowest, Burstall & Co v Grimsdale and Sons66, conflicting as it does with the later decision in the Shipton Anderson case67, leaves the question unsettled by authority. Stated at its highest, it decides the question against rejection, Kennedy J’s judgment not having been cited in Shipton Anderson68, in which the buyer was held, in any case, to have waived the right, which they allegedly had, to reject the bill of lading. A ‘Residual’ Doctrine of Fundamental Breach 7.19

The trigger restricting the carrier’s liberty to deviate in Glynn v Margetson69 is the discrepancy between the voyage agreed in the contract of carriage and the apparently limitless extent of the liberty to deviate. What, however, if the clause seeks to extend the limits of the contract voyage, out to the normal restrictions? Consider, for instance, a clause that might read: ‘Any action taken or not taken by the Carrier under this clause, or delay resulting therefrom, shall be deemed to be included within the contractual transit and shall not be a deviation’. A clause in broadly similar terms was the object of litigation in Connolly Shaw Ltd v A/S Det Nordenfjeldske D/S70, where Branson J decided that even such a clause could not be ‘imported into the definition of the voyage’ such as to ‘lead to an entire frustration of a contract [of carriage]’71. In short, the courts refuse parties their joint freedom 64 See Benjamin, para 19–033 citing the example of the liner trade where the use of ‘non direct routes is usual or customary’. 65 (1922) 10 Ll LR 762. Neither, it seems, has the decision been considered in any other case; it was acknowledged, without observation, by Viscount Caldecote LCJ in Finska Cellulosaforeningen v Westfield Paper Co Ltd [1940] 4 All ER 473 at 478. 66 (1906) 11 Com Cas 289. 67 (1922) 10 Ll L R 762. 68 Ibid. 69 [1893] AC 351. 70 (1934) 49 Ll L Rep 183. The relevant part of the liberty to deviate clause read: ‘and all such ports, places and sailings shall be deemed included within the intended voyage of the said goods’. 71 Ibid at 191. Branson J’s judgment sounds uncannily like an early version of the doctrine of fundamental breach, a doctrine assaulted by the House of Lords in Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 and given decent burial in Photo Productions v Securicor [1980]  AC  827. Despite the uncomfortable affinity between that doctrine and this part of Branson J’s judgment, it is clear that enough life is left in the doctrine to allow the judges to strike down clauses which, if applied, would deprive the agreement of ‘the legal characteristics of a contract’: see per Lord Diplock in the Securicor case, at [1980] AC 827 at

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The Bill of Lading Must Provide Continuous Documentary Cover

7.21

to derogate that far from the ostensible, or original, voyage. Consequently, the law of carriage offers the receiver of goods sufficient protection against unjustified use by the carrier of even the widest form of liberty clause: to grant the buyer the right to reject the documents against the seller would be to give the buyer a quite gratuitous remedy against the wrong person (the shipper/shipper) under the wrong contract (the sale contract). COGSA 1971 Finally, where COGSA 1971 applies, article IV.4 of the Schedule to the Act allows only ‘[a]ny deviation in saving or attempting to save life or property at sea or any reasonable deviation’. The exercise of a liberty clause outside the circumstances allowed by article IV.4 would, we submit, come to grief against article III.8, which renders null:

7.20

‘[A]ny clause … relieving the carrier or the ship 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.’ Again, through these articles of the Hague-Visby Rules, the law of carriage solves the buyer’s problems if and when they arise: what need, then, of additional rights under the contract of sale? It must be recalled that the obligation of the seller is to procure for the buyer a contract of carriage giving the buyer continuous cover against the carrier, not one which gives the carrier no defences. Thus, the use by a carrier of a clause giving them a liberty to deviate is hedged around by restrictions, both judicial and statutory: where the buyer has not thought to stipulate for direct carriage in the sale contract, it is suggested that they need no further remedies under the contract of sale for deviation by the carrier, whether justified or not by the contract of carriage.

(b)  The Carrier’s Liberty to Stow the Cargo on Deck The Carrier’s Liberty to Stow Cargo on Deck is not a Liberty to Stow the Cargo Negligently Where the carrier carries goods on deck, with or without an express liberty in the carriage contract to do so72, the buyer can, if damage ensues, sue the carrier for

850E–F, and other cases cited in Debattista ‘Fundamental Breach and Deviation in the Carriage of Goods by Sea’ 1989 JBL 22. See, further, The Kapitan Petko Voivoda [2003] 2 Lloyd’s Rep 1. See also The Sur [2018] EWHC 1673 (Comm). 72 A liberty to carry on deck is simply a clause making it clear where the goods may be stowed: it is not a licence to stow them negligently. If that is the construction put on the liberty clause, then the Hague-Visby Rules art III.8 can be used to render the liberty null and void.

187

7.21

7.22

Tender of the Bill of Lading as a Contract of Carriage

breach of the latter’s duty ‘properly and carefully [to] stow’ the goods73: the buyer’s remedy74 against the carrier75 clearly emerges from the contract of carriage76. So far as concerns the sale contract, in shipment sales, risk in transit loss rests with the buyer from shipment such that the buyer’s remedies for goods lost or damaged in transit lie not against the seller but against the carrier.

Where the Sale Contract Allows Deck Stowage, the Tender of a Bill of Lading Permitting Such Carriage is not a Breach 7.22

It is clear that where the sale contract expressly allows the goods to be carried on deck, then tender of a bill of lading stating that the goods will be so carried, or that they may be so carried, will constitute good tender. Equally clearly, a seller may in these circumstances tender a bill of lading which is silent as to the matter of deck stowage. It is not so clear, however, whether tender of a bill of lading prohibiting deck stowage would constitute good tender. A  buyer who had expressly agreed to a term allowing deck stowage may have done so for good commercial reasons, for example, for ease and speed of discharge. Whether or not a bill of lading prohibiting deck stowage in these circumstances constitutes good tender is likely to be a matter of construction, according as to whether the sale contract simply allowed deck stowage or positively required it.

Where the Sale Contract Prohibits Deck Stowage, the Seller Must Procure a Bill of Lading so Providing 7.23

Where the sale contract expressly prohibits deck stowage, a bill of lading prohibiting deck stowage constitutes good tender and a bill of lading stating that 73 COGSA 1971, Sch art III.2. Where the Act does not apply, a similar clause will be implied by the courts: The Royal Exchange Shipping Company Ltd v W J Dixon & Co (1886) 12 App Cas 11. The case involved four bills of lading, three of which specifically stipulated for under deck carriage, the fourth of which was silent as to the manner of stowage. The House of Lords held that the term would be implied into the fourth bill, and would have been implied into all four had all four been silent on the matter. 74 Despite the fact that unauthorised deck carriage was historically regarded as a form of quasideviation, it would appear now to be virtually beyond argument that unauthorised deck carriage does not of itself deprive the carrier of their defences under the bill of lading: see The Antares (Nos 1 and 2) [1987] 1 Lloyd’s Rep 424 and The Kapitan Petko Voivoda [2003] 2 Lloyd’s Rep 1. See also Scrutton, article 88 and Carver on Bills of Lading, para 9.059. 75 In The Nea Tyhi [1982] 1 Lloyd’s Rep 606, it was suggested in argument that the carrier, as opposed to the actual signatory, could escape liability on the basis that the signature of a bill of lading could not bind a carrier for goods carried on deck when such carriage was unauthorised by the bill, that is to say on the grounds of Grant v Norway (1851) 20 LJCP 93. The argument was greeted by Sheen J with something lying between irritation and contempt: see pp 610–11. The Nea Tyhi was disapproved of, but not on this point, in The Aliakmon [1986] 2 Lloyd’s Rep 1. 76 To which COGSA 1971 can apply: article I(c) of the Schedule to the Act only excludes from its application ‘cargo which by the contract of carriage is stated as being carried on deck and is so carried’. Unauthorised deck stowage is, by definition, not stated to be carried on deck.

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7.24

the goods will or may be stowed on deck constitutes bad tender. If the buyer took care to prohibit deck stowage in their sale contract, it would be strange for the law to justify tender of a bill of lading explicitly stating that the goods are or may be stowed on deck. What is the position, however, if the sale contract prohibits deck stowage but the bill of lading is silent as to whether the goods may or may not be carried on deck? In view of the express prohibition of deck stowage in the sale contract, does the seller owe the buyer a duty to procure not only a contract which does not allow deck stowage, but one which expressly prohibits it? Authority indicates that, in these circumstances, where the goods are actually carried on deck the buyer has a separate remedy against the seller under the sale contract for having failed to stipulate with the carrier carriage under deck77.

Where the Sale Contract is Silent as to Deck Stowage, the Bill of Lading may Also be Silent Where the sale contract is silent as to deck stowage, tender of a bill of lading prohibiting deck stowage would clearly constitute good tender: if the buyer chose to be silent on this matter when negotiating the contract of sale, it is too late now for them to insist on a bill of lading which did not prohibit such carriage, even in circumstances when, for some reason78, they might have preferred a bill of lading allowing deck stowage. Where the bill of lading tendered gives the carrier a liberty to carry on deck, then again the seller would be justified in tendering such a bill so long as deck stowage would not be unreasonable in the circumstances, for example, if the goods shipped were clearly of a type which ought not to be carried on deck. However, the situation is more complex where the bill of lading actually states that the goods are carried on deck. If they are so carried, the Hague-Visby Rules will not, prima facie, apply to the contract of carriage79 and, consequently, the buyer’s remedies against the carrier are not protected by those Rules. Indeed, it has been suggested that because of this consideration the buyer is entitled to reject goods carried on deck unless the contract of sale expressly permits such carriage. The ‘general proposition that the deck is not the place upon which to put cargo except by such special arrangement80 appears to apply as much to contracts of sale as

77 Montague L Meyer Ltd v Travaru M/BH Cornelius of Gambleby (1930) 37 Ll L Rep 204; Messers Ltd v Morrison’s Export Co Ltd [1939] 1 All ER 92; White Sea Timber Trust Ltd v W W North Ltd (1933) 44 Ll L Rep 390. In Messers Ltd v Morrison’s Export Co Ltd [1939] 1 All ER 92, the express term read ‘to be loaded on deck one-third’. Branson J was happy to construe this to mean that the residue was to be stowed under deck. See also Benjamin, para 18–320 and Sassoon at para 4–067. 78 For example, the greater ease of discharge. 79 See COGSA 1971, Sch art I(c); but see also s 1(7), which provides for the application of the Rules where the bill of lading or non-negotiable receipt ‘applies to deck cargo’. 80 Messers Ltd v Morrison’s Export Co Ltd [1939] 1 All ER 92 at 93.

189

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Tender of the Bill of Lading as a Contract of Carriage

to contracts of carriage’.81 On the other hand, it may be argued that the buyer is in this position because they had failed expressly to exclude deck stowage in their purchase contract. Had the buyer so excluded, they would clearly have been entitled to reject a bill of lading stating the goods to be on deck. The practical upshot is that a buyer particularly anxious to ensure that their goods are stowed in the hold is best advised so to stipulate in their purchase contract.

How Carrying Cargo on Deck Interacts With Letters of Credit 7.25

Where a letter of credit is in place, UCP 600 art 26(a) establishes two propositions: first, a bill of lading stating that the goods will be carried on deck will be rejected; secondly, that a bill of lading stating that the goods may be stowed on deck will be accepted82. The article is subject to the usual caveat in UCP 600 art 1 that the position may be modified though express stipulation in the letter of credit. In most cases, article  26(a) is likely to work smoothly with the rules described above regulating deck carriage and the law of sale of goods. There are, however, situations where the two sets of rules do not coincide. In such circumstances, the letter of credit must give clear instructions as to tender if unnecessary disputes are to be avoided with the banks at the point of tender. Thus, if the sale contract expressly allows deck carriage but the letter of credit does not, the bank is entitled and obliged to reject a bill of lading stating that the goods will be stowed on deck. Where both the sale contract and the letter of credit are silent as to deck stowage, the bank is bound to accept a bill of lading giving the carrier a liberty to carry on deck, even if such stowage is unreasonable in the circumstances. There could, therefore, be unwelcome surprises, either for the seller where documents are rejected or for the buyer where documents are accepted and paid for. Such surprises can be avoided by making sure that the buyer makes their intentions clear in the letter of credit as to what type of mention, if any at all, is to be made of deck stowage in the transport documents to be tendered under the letter of credit.

(c) Transhipment Transhipment: the Questions Defined 7.26

Transhipment occurs when the carrier with whom the shipper concludes the contract of carriage performs only part of the voyage on the vessel named in

81 Benjamin, para 18–320, on the authority of Branson J in Messers Ltd v Morrison’s Export Co Ltd. However, Branson J implied no new general term binding the seller to a promise that the carrier will carry on deck: the judge simply construed an express term that one third of the cargo would be carried on deck to mean that two-thirds would not. 82 Article 26(a) now provides ‘A transport document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the goods may be loaded on deck is acceptable’.

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The Bill of Lading Must Provide Continuous Documentary Cover

7.26

the contract, using other vessels, whether owned by the contractual carrier or by others, for the other part(s) of the voyage83. Can a seller tender a bill of lading giving the carrier a liberty to tranship the goods or one stating that the goods will be transhipped? As with bills of lading stating the carrier’s rights regarding deck stowage, money turns on these issues of transhipment where a buyer seeks for commercial reasons to reject a bill of lading containing either of these clauses. As with deck stowage, a sale contract can do one of several things regarding transhipment: it may (a) expressly allow transhipment, (b) expressly prohibit it, or (c) say nothing about it. Bills of lading typically do one of two things regarding transhipment: they may state that the goods will be transhipped84 or they may simply state that the carrier has a liberty to tranship. In either case, the carrier may make it clear in their bill of lading that their responsibility continues to the agreed discharge port beyond the transhipment, or – far more favourably to the contractual carrier85 – the carrier may state that their responsibility will cease with transhipment. From the buyer’s point of view, it is clear that the least palatable type of bill of lading in this regard is one which gives the carrier the option of transhipping the goods together with a disclaimer of responsibility beyond transhipment86. Whichever of these types of bill of lading is tendered, it is clear that transhipment may raise concerns regarding continuous documentary cover. These doubts may appear to be less obvious than those which arose in Hansson v Hamel & Horley87 itself, where the seller tendered only one bill of lading covering only a part of a journey carried out by two carriers with each of whom the seller had concluded a separate contract of carriage. Here, on the other hand, the seller will have concluded one contract of carriage on the basis of a bill of lading which envisages performance on more than one vessel. 83 The term is at times also used to signify the use of modes of transport other than ships for the carriage of the goods over part of the voyage. 84 In the nature of things, this is particularly common where containers are shipped on ocean carriers then to be transhipped onto smaller coastal or feeder vessels. 85 The buyer may, in certain circumstances, pursue a remedy against the actual carrier: see The K.H. Enterprise [1994] 1 Lloyd’s Rep 593. 86 See, for example, clause 20 of the Japan Shipping Exchange Inc’s SHUBIL –1994 (A) Bill of Lading which reads: ‘(1)(i) In case of through carriage under this Bill of Lading, the Merchant constitutes the Carrier his agents to enter into contracts with others for the pre-carriage and/ or on-carriage of the Goods and/or for the storing, lightering, transhipment or other dealing therewith, prior to, or in the course of, or subsequent to the carriage in the Carrier’s vessel without any liability attaching to him in respect of such agency. (ii) The responsibility of each carrier acting as such is limited to that part of the transport actually undertaken by him, and the Carrier shall not be under any liability for damage and/or loss arising from whatsoever cause during any other part of the transport, even though the freight for the whole transport has been collected by the Carrier … (3) The carrier shall be at liberty, whether or not arranged beforehand or indicated on the face hereof, to tranship the whole or any part of the Goods, with or without notice, at any port or place for any purpose whatsoever, or to forward the same by any means of transport by water, land or air, whether owned or operated by the Carrier or not. The Carrier’s liability shall, in this event cease when the Goods leave the Vessel’s tackle’. 87 [1922] 2 AC 36.

191

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Tender of the Bill of Lading as a Contract of Carriage

Indeed, where the bill of lading simply gives the carrier a liberty to tranship, it may appear that the buyer has even less cause for concern for, here, the carrier simply has an option which they may or may not exercise. The urgent problem from the buyer’s point of view lies, however, not in whether the bill of lading states that the goods will be transhipped or that they may be transhipped; nor indeed in whether the carrier has or has not transhipped the goods. The pressing problem at the time of tender is that the buyer does not know whether the goods have been or will be transhipped, but will know if the bill of lading states brazenly that the contractual carrier will only be responsible for goods before transhipment. Does the buyer pay? Must the buyer pay? And how is the issue affected by the presence of a letter of credit? We shall look at these questions in the context of sale contracts allowing or prohibiting transhipment and in the context of sale contracts which are silent as to transhipment. We shall then look at the impact which letters of credit may have upon these issues.

(i)  Where the Sale Contract Allows Transhipment 7.27

Where the sale contract expressly allows transhipment, a bill of lading stating that the goods will be transhipped without disclaiming the contractual carrier’s responsibility after transhipment will constitute good tender. Although there appears to be no direct authority on the point, this conclusion seems to follow from the basic principle of continuous documentary cover: the bill of lading here envisaged does not terminate the carrier’s responsibility after transhipment and therefore constitutes good tender. On the other hand, tender of a bill of lading stating that the goods will be transhipped and disclaiming responsibility after transhipment will constitute bad tender despite the fact that the sale contract expressly allows transhipment: the bill of lading here clearly points to a gap in cover which will arise because the bill states that the goods will be transhipped. So far as concerns a bill of lading giving the carrier a liberty to tranship, where the sale contract expressly allows transhipment, the tender of such a bill which does not seek to disclaim responsibility after transhipment is valid. So far as concerns the contract of sale, Lord Sumner hints at this in his speech in Hansson v Hamel and Horley Ltd88 and it seems, in any case, quite clear as a matter of principle that this should be the case89. There might at one stage have been thought to exist a problem with that stage of the voyage during which the goods were on land, awaiting transhipment: for surely, here, the statutory regime normally applying to contracts of carriage by sea covered by a bill of lading, namely COGSA 1971, could not apply since the goods were on land, and consequently there would be a gap in continuous cover during that period. The point arose in the context of a cargo claim in Mayhew Foods Limited v Overseas Containers Ltd90, a case in which Bingham J decided that the Carriage of 88 [1922] 2 AC 36 at 48. 89 See Benjamin, para 19–028. 90 [1984] 1 Lloyd’s Rep 317.

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The Bill of Lading Must Provide Continuous Documentary Cover

7.29

Goods by Sea Act 1971 applied to the whole transit, including the time during which the goods were awaiting transhipment on land. There is now, consequently, clearly no problem with continuous documentary cover on this score91. On the other hand, where the sale contract expressly allows transhipment we suggest that a bill of lading (1) giving the carrier a liberty to tranship and (2) disclaiming liability after transhipment constitutes bad tender. The term in the sale contract allowing transhipment should be construed in such a way as to preserve the seller’s duty to provide the buyer with continuous documentary cover; that is to say that, while the buyer agreed to the tender of a bill of lading allowing transhipment, this was subject to the overriding duty of the seller to provide continuous cover for the buyer’s risk of transit loss.

(ii)  Where the Sale Contract Prohibits Transhipment Where the sale contract expressly prohibits transhipment, whether the contractual carrier shoulders responsibility for the entire voyage, tender of a bill of lading stating that the goods will be transhipped will constitute bad tender, given the expressed intentions of the parties to the sale contract. The same would appear to follow where the bill of lading simply gives the carrier a liberty to tranship.

7.28

(iii)  Where the Sale Contract is Silent as to Transhipment Where the sale contract is silent as to transhipment, the tender of a bill of lading stating that the goods will be transhipped will constitute good tender so long as it does not seek to disclaim the contractual carrier’s responsibility after transhipment. We suggest that this is the case for the same reason as that suggested in the context of such bills of lading where the sale contract expressly allows transhipment: the bill of lading does provide continuous documentary cover against the carrier – and there is therefore no ground for rejection against the seller. Again, where the sale contract is silent as to transhipment and the seller tenders a bill of lading giving the carrier a liberty to tranship without disclaiming responsibility beyond transhipment, we suggest that the bill of lading constitutes good tender because such a bill does not raise legitimate concerns regarding continuous documentary cover92. 91 Indeed, it is doubtful whether there ever was: for continuous documentary cover requires that the contract of carriage sold to the buyer gives them a right of action against the carrier in respect of the entire transit; it does not, it is submitted, require that the responsibility of the carrier be uniform throughout that period. 92 But see Fischel v Knowles Spencer (1922) 12 Ll L Rep 36, a case which causes some difficulty for the proposition in the text. This was a case where the sale was silent as to transhipment and where the bill of lading gave a liberty to tranship. No mention is made of any term in the bill disclaiming liability when the goods left the vessel named in the bill of lading; consequently, it appears as though the bill gave continuous documentary cover. This notwithstanding, the court, composed of Hewart LCJ, Bailhache and Salter JJ, decided that tender was invalid: the court felt bound by a finding of fact made by the arbitrator that a seller wishing to retain the right to tranship would customarily insert a stipulation to that effect in the sale contract. The terms in which the judgment

193

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Tender of the Bill of Lading as a Contract of Carriage

The issue is rather more complicated, however, where the sale contract is silent as to transhipment and the seller tenders a bill of lading which gives the carrier a liberty to tranship while at the same time disclaiming responsibility beyond transhipment. We suggested above93 that, where the sale contract allows transhipment, a bill of lading granting the carrier a liberty to tranship should only constitute good tender if the bill does not seek to disclaim responsibility beyond transhipment. Similar considerations of continuous documentary cover should lead to the same conclusion where the sale contract is silent as to the issue of transhipment and that tender of a bill of lading not affording such cover would be invalid. The difficulty here, however, is that the case law is conflicting. Some support for the suggestion made here can be gleaned from the obiter dictum in Holland Colombo Trading Society Ltd v Alawdeen and others94. On the other hand, McNair J in Soproma SpA  v Marine & Animal By-Products Corporation95 held that tender of such a bill would be valid, at any rate where the transhipment had not yet occurred at the time of tender. McNair J put it thus96: ‘As at present advised, I should not be disposed to hold that a bill of lading otherwise unobjectionable in form which did in fact cover the whole transit actually performed would be a bad tender merely because it contained a liberty not in fact exercised but which, if exercised, would not have given the buyers continuous cover for the portion of the voyage not performed by the vessel named in the bill of lading.’ With respect, McNair J’s view misses the point of tender of documents in shipment sales: the criterion for validity of tender is not whether the documents afford continuous documentary cover on the facts which have happened and which are known to have happened; rather is it whether the documents offer ‘at the time when the documents are tendered’ the prospect of continuous cover whether or not the liberties contained therein are exercised97. Of all the different sets of circumstances examined in the last few pages, this is the one most frequent in practice and, as indicated above98, this is the one least palatable from the buyer’s point of view. Where the sale contract is silent about transhipment, where the bill of lading gives the carrier the right to tranship, and where the bill expressly disclaims the contractual carrier’s responsibility after transhipment, the buyer is likely to have paid for documents by the time

93 94 95 96 97 98

was couched make it difficult to distinguish this case on the basis of special custom: it must be said, though, that the finding of fact by the arbitrator as to the general custom alleged by the buyer would not, of course, be binding in future cases. The case has received no attention in the courts, and only little attention in the literature: see Sassoon at para 5–059 and Benjamin at para 19–029. See para 7.27. [1954] 2 Lloyd’s Rep 45 at 53. The opinion there expressed was obiter because the sale in that case was not a shipment sale but one under which the seller undertook to ensure the arrival of the goods. [1966] 1 Lloyd’s Rep 367. Loc cit at 388–9. See Benjamin, para 19–027. At para 7.26.

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The Bill of Lading Must Provide Continuous Documentary Cover

7.30

they discover that the liberty was exercised and that the goods have been lost or damaged after transhipment99. Given the state of the authorities on whether tender of such a bill constitutes good tender, buyers anxious to avoid unhappy surprises would be well advised to stipulate in their purchase contracts whether or not they are happy to pay against documents allowing transhipment and, if so, the terms of carriage upon which such transhipment is conducted.

(iv)  Transhipment and Letters of Credit Where a letter of credit is in place, UCP 600 contain detailed articles regulating the tender of bills of lading providing for transhipment100. The crucial article is article 20, sub-articles (c) and (d), which deal with the tender of bills of lading. The article contemplates three separate circumstances: (a)

First, where the bill of lading states that the goods will be transhipped without indicating that the goods will only be transhipped if they are shipped in containers, trailers or lash barges, the bill of lading constitutes good tender if the entire ocean carriage is covered by one and the same bill of lading101.

(b)

Secondly, where the bill of lading states that the goods will be transhipped in containers, trailers or lash barges, the bill of lading constitutes good tender whether or not the letter of credit prohibits transhipment102. It may seem strange that the UCP  600 are here instructing the paying bank to ignore an express term in the letter of credit prohibiting transhipment. It should be noted, however, that the buyer who finds that the banks have accepted such a bill of lading is not faced here with a gap in continuous documentary

99 It is a moot point whether in these circumstances the buyer could, as the receiver of the goods, challenge the validity of the clause disclaiming liability through the Hague-Visby Rules art III(8). Lord Asquith, in the Holland Colombo case itself, intimates obiter on the same page that, where the Rules are compulsorily applicable, such a challenge could validly be mounted. Sed quaere given The Jordan II [2005] Lloyd’s Rep 57: if a clause reallocating the duty of stowage from carrier to shipper is beyond the reach of article III.8, then it is difficult to see why a clause terminating liability after the goods leave the carrier’s vessel is within the reach of that article. 100 See article 20(b), (c) and (d) for bills of lading; article 21(b), (c) and (d) for non-negotiable sea waybills (identical in all respects with the relevant parts of article 20); and article 19(b) and (c) for multimodal transport documents. For a fuller discussion of these articles, see Debattista ‘The New UCP 600 – Changes to the Tender of the Seller’s Shipping Documents under Letters of Credit’ (2007)  JBL  329 especially at 343–49. See further Ellinger ‘The UCP for Documentary Credits: their development and the current revisions’ [2007] LMCLQ 152, especially 170–1. 101 See article  20(c)(i). It is not entirely clear what this condition means. If it simply means that the bill of lading must indicate the port of loading and discharge mentioned in the credit, then the condition is otiose because article 20(a)(iii) already makes such a requirement. On the other hand, if it means that the document checker must reject a bill of lading disclaiming liability after discharge, then this would conflict with article (20)(a)(v) which bars examination of terms and conditions of carriage. It is suggested that, as otiose is preferable to contradictory, the first interpretation is more sensible. If this is right, a buyer fearful of a clause disclaiming liability after transhipment would be well advised to exclude article 20(c)(i) from their application for the opening of a letter of credit. 102 See article 20(c)(ii).

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Tender of the Bill of Lading as a Contract of Carriage cover: article 20(a)(iii)103 applies to such bills of lading which must therefore still indicate shipment from the port of loading to the port of discharge stated in the credit.

(c)

Finally, article 20(d) states that ‘clauses in a bill of lading stating that the carrier reserves the right to tranship will be disregarded’. The effect of this article104 is that a document checker would, as it were, ‘read out’ of the letter of credit a liberty to tranship clause and accept a bill of lading containing such a clause whether the letter of credit allowed or prohibited transhipment.

Where the bill of lading gives the carrier a liberty to tranship, the bill can be tendered whether or not the carrier undertakes through responsibility and whether or not the letter of credit prohibits transhipment105. In this situation, a buyer of goods may find themselves having paid under a letter of credit for a bill of lading which excludes the contractual carrier’s liability for parts of the transit not carried out on the contracted vessel – and this despite their having taken the precaution of prohibiting transhipment in the trading contract and in the letter credit. This result might have been avoided by requiring the bill of lading to impose responsibility for the entire transit on one carrier. Indeed, it is not entirely clear why this requirement should be made of bills of lading stating that the goods will be transhipped, giving the buyer and the bank full notice of transhipment, but not of bills giving the carrier a liberty to tranship, with the buyer left in the dark as to their possible remedies against the carrier. As the article currently stands, the bank must pay against tender of a bill of lading giving the carrier a liberty to tranship, whatever the letter of credit says about transhipment. It remains open, in theory at any rate, for the buyer and the issuing bank to contract out of article 20(d) when the buyer applies for the letter of credit. Whether or not buyers are sufficiently attuned to the intricacies of the UCP  600 and whether or not banks are inclined to agree to the contractual exclusion of part of the UCP 600 is a matter of speculation.

103 Requiring the bill of lading to indicate shipment from the port of loading to the port of discharge stated in the credit. 104 There does appear to be a conflict between article  20(d) and 20(c)(i). Because article  20(c)(i) covers both bills of lading which state that the goods will be transhipped and bills of lading which state that the goods may be transhipped, it is not at all clear which of the two articles governs bills of lading with a liberty to tranship. Money may turn on this because article 20(c)(i) requires the entire carriage to be covered by the same bill of lading, whereas article 20(d) would simply have the document checker disregard the liberty clause: on this, cf Debattista ‘The New UCP 600 – Changes to the Tender of the Seller’s Shipping Documents under Letters of Credit’ (2007) JBL 329 at pp 348–9. 105 See article 23(d)(ii).

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The Bill of Lading Must Provide Continuous Documentary Cover

7.31

(d)  Bills of Lading With Stipulated Destination Different to Stipulated Sale Contract Destination The Destinations in the Two Contracts Must Tally The destination in the bill of lading must be the same as that in the sale contract. Where Incoterms are incorporated into the contract, express stipulation is made to this effect106. Where Incoterms do not apply, it is clear that such an obligation will be implied at common law: SIAT di dal Ferro v Tradax Overseas SA107. The central issue in that case was whether the buyers were entitled to reject a number of bills of lading108 on the ground that they did not provide for carriage to the destination stipulated in the contract of sale. In one set of bills of lading, the discrepancy between the two was as obvious as it could be: the sale contract provided for carriage to Venice, whereas the bills of lading were made out for Ancona/Ravenna109. It was held that the buyer was entitled to reject: it availed the sellers nothing that they authorised the master, on arrival at Venice, to alter the destination on the bills to indicate ‘Venice’ as the port of discharge110. The principle was clearly stated thus in Megaw LJ’s judgment111: ‘The buyer is not under any duty to speculate or to investigate, or to accept assurances outside the bill of lading. The bill of lading is the document to which he is entitled to look as being definitive of the contract of carriage binding on the shipowner, as being a contract entered into or in existence at the time of the shipment of the goods, so as to cover the whole of the carriage from the port of loading to the port of discharge provided for by the contract of sale .…The buyer ought not to be put in the position of having, as it were, to buy the possibility of litigation in respect of the contracts of carriage and insurance, the risk and outcome of which may be unpredictable at the moment when the buyer has to make up his mind to accept or reject the documents.’ 106 See, respectively, Incoterms 2020 CIF A6: ‘The seller must, at its own cost, provide the buyer with the usual transport document for the agreed port of destination’. The same obligation is contained in FOB sales in Incoterms 2020. See FOB A6. 107 [1980] 1 Lloyd’s Rep 53. The sale contract in that case did not incorporate Incoterms; neither did it contain any express term stipulating that the destination in the bill of lading and the contract of sale should be the same. See also The Playa Larga [1983] 2 Lloyd’s Rep 171, at 184; The Northern Progress [1996] 2 Lloyd’s Rep 319 at 330–1, and other authorities cited at Benjamin, para 19–031, footnotes 227, 228. 108 We learn from Megaw LJ that ‘some 40 or 50 issues or sub-issues’ were aired by the parties during the various stages of arbitration and litigation; thankfully, though, we learn also, early on in the judgment, that the ‘real’ issues were relatively few. To another of the ‘real’ issues we shall return in due course: namely, the question as to whether a charterparty needs be tendered when a bill of lading refers to such a contract, in Chapter 8. 109 See [1980] 1 Lloyd’s Rep 53, at p 60; the ‘bills of lading in group 4’. In another two sets of bills of lading, the discrepancy arose because the bills simply gave as the port of discharge the phrase: ‘As per charterparty’; see pp 59–60 of the report, for the bills of lading in groups 2 and 3. This aspect of the case will be dealt with in Chapter 8. 110 See loc cit p 62 for the very curious turn which events took. 111 Loc cit at p 63.

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7.32

Tender of the Bill of Lading as a Contract of Carriage

The Vessel Must be Able to Reach the Sale Destination 7.32

The seller’s duty to procure a contract of carriage for the sale destination means not only that the destination named in the contract of carriage must be identical to that named in the contract of sale, but that the vessel engaged by the seller must be able to reach the sale destination. Thus, where a seller engaged a vessel which, because of its draught, could not reach the port agreed in the sale contract, the seller was in breach of that contract: it availed them nothing to plead that the choice of vessel had been agreed with the buyer in the contract of sale: The Epaphus112.

(e)  Freight Collect Bills of Lading Where the Situation Arises 7.33

A  CIF seller will normally pay the freight due on the contract of carriage, a contract which the seller concludes with the carrier: the seller will, of course, recover – likely, more than recover – the cost of the carriage by including it in the CIF price of the goods. Likewise, where the FOB seller makes the carriage arrangements, the seller may pay the carrier themselves and charge the cost of the carriage to the buyer by separate invoice. In either case, where the seller is not themselves the shipper of the goods, that is to say when the seller is some way down a string, the seller will not have paid the freight and yet may find themselves purchasing from the earlier seller, and tendering to a buyer under a previously negotiated contract a bill of lading indicating that freight has yet to be paid, a so-called ‘freight collect’ bill of lading. In these circumstances, is the tender of a ‘freight collect’ bill of lading good tender under the sale contract and under any accompanying letter of credit? Money turns upon the point because, if the seller cannot so tender, a buyer against whom the market has turned could reject the documents and seek alternative goods at a cheaper price.

Freight Collect Bills of Lading Where There is no Letter of Credit 7.34

The fundamental principle is that the buyer must not end up paying the freight twice, once to the seller and once to the carrier. Consequently, a seller in this situation is at liberty to tender a freight collect bill of lading, so long as two conditions are satisfied: first, that the sale contract does not expressly require a freight pre-paid bill; and secondly, that the sum of the freight payable at discharge is deducted from the invoice113.

112 [1986] 2 Lloyd’s Rep 387 at 392–3; affirmed by the Court of Appeal at [1987] 2 Lloyd’s Rep 215. 113 See The Julia [1949] AC 293 at 309 and Incoterms 2020 CIF A9(b).

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The Bill of Lading Must Provide Continuous Documentary Cover

7.35

Freight Collect Bills of Lading Where There is a Letter of Credit There is no equivalent in the UCP 600 of the old article 33 of the UCP 500. The old article 33 allowed the tender of freight collect transport documents ‘unless otherwise stipulated in the credit or inconsistent with any of the documents in the credit’. This article was commonly understood to mean that a freight collect bill of lading was acceptable if the credit did not require a freight prepaid bill and if the invoice tendered under the credit made a deduction on account of the freight yet to be paid by the buyer. With no equivalent of this article in the UCP 600, the result would appear to be that, in the absence of an express prohibition of freight collect transport documents in the credit itself, a freight collect transport document would be acceptable – surprisingly to a buyer, whether or not deduction is made for an amount on account of freight. The practical consequence is that where a buyer wants to avoid tender of a freight collect transport document they should make sure that the credit either prohibits the tender of freight collect documents or requires transport documents to be marked freight prepaid.

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Chapter 8

Tender of Bills of Lading Under Charterparties

PROBLEMS CAN BE CAUSED BY THERE BEING DIFFERENT POTENTIAL SOURCES OF CONTRACTUAL TERMS 8.2 UNDER WHICH CONTRACTUAL TERMS IS THE BUYER TO SUE THE CARRIER? 8.6 (a) Where the Bill of Lading is in the Hands of the Charterer 8.7 (b) Where the Bill of Lading is in the Hands of a Third Party 8.13 (c) Incorporation of Charterparty Clauses Into Bills of Lading 8.14 – Incorporation in General 8.15 – Incorporation of Arbitration Clauses 8.18 WHOM IS THE BUYER TO SUE FOR SHORT-DELIVERY OR DAMAGE TO GOODS? IE WHO IS THE CONTRACTUAL CARRIER?8.20 THE BILL OF LADING AS A RECEIPT IN THE HANDS OF A CHARTERER8.24 (a) Charterer Selling CIF 8.25 (b) Charterer Buying FOB 8.27 BUYER’S RIGHTS WHERE A BILL OF LADING IS ISSUED UNDER A CHARTERPARTY8.29

Context of This Chapter A  shipper will not infrequently charter an entire vessel under a voyage or time charterparty to carry their goods from A to B. Where they do that, they will still want the master to issue bills of lading in respect of the goods loaded. In such circumstances, issues may arise as to which document governs the relationship between the parties as to the carriage of the goods: (1) the charterparty; or (2) the bill of lading (the latter of which might incorporate certain charterparty terms in any event). This is of particular importance for the buyer of such goods: (a) If there are two shipping documents, the charterer and any buyer, as receiver of the goods, need to know which of the two documents provides the contract upon which they can sue the carrier for short-delivery or for damage to the goods. 201

8.1

8.2 (b)

Tender of Bills of Lading Under Charterparties If the goods bought by a buyer have been carried on a vessel which is under charter, the buyer needs to know whom they should sue in a cargo claim, the shipowner, or the charterer.

(c) Where the carrier issues a bill of lading covering goods carried on a chartered ship, the buyer needs to know how strong a statement of the quantity and apparent condition of the goods on shipment in the bill of lading the buyer can demand of the carrier. (d) As a general point, one needs to know whether bills of lading referring to charterparties, or purporting to incorporate charterparty terms, can be tendered under the terms of shipment sales and under letters of credit.

PROBLEMS CAN BE CAUSED BY THERE BEING DIFFERENT POTENTIAL SOURCES OF CONTRACTUAL TERMS A Charterer Needs a Bill of Lading 8.2

Where the shipper of goods charters a vessel, their contract with the carrier will be recorded in the charterparty but they will also need another document, a bill of lading, if their commercial interests and those of others are to be safeguarded; and this for two reasons. First, although the charterer is entitled, as a bailor of the goods entrusted to the shipowner, to the return of the same goods in the same quantity and condition as shipped, the value of this right is much enhanced, for all the reasons we examined in Chapter 6 when looking at the receipt function of the bill of lading, if the shipowner has issued a receipt stating the quantity and condition in which the goods were shipped. The receipt function of the bill of lading enhances the charterer’s evidential hand against its carrier. Secondly, it serves no one’s interest for the commercial value of the goods to be locked in the vessel, as it were, for the duration of the transit. Where the goods are shipped in performance of a contract of sale, the seller-shipper needs a document through which they can pass to the buyer-receiver the right to demand delivery on discharge. In short, they need a transferable document of title. Indeed, that buyer might wish to take advantage of market movements during the transit of the goods by selling to others down a string. For the same reason, shippers of goods loaded on a general ship under charter will want a bill of lading they can sell to their buyers, and the latter to their sub-buyers, who might include the charterer themselves, buying the goods back down a string of buyers. In all of these situations, the charterer needs a document performing functions – as a receipt and as a document of title – which their contract with the shipowner, the charterparty, does not perform: in all of these cases, whether they are selling CIF or buying FOB, or not selling or buying at all, the charterer needs a bill of lading. 202

Problems can be Caused by There Being Different Potential Sources of Contractual Terms 8.5

Use of Bills of Lading and of Charterparties Within the Same Transaction If the goods to be shipped under a sale contract are such, in nature and in quantity, that they can fill a whole vessel, then it is more likely than not that the shipper will think of chartering a ship; for obvious reasons, this is commonly the case in the sale of commodities on shipment terms, the main remit of this book. Even if the shipper does not need all the space on a vessel for the performance of their obligations under the sale contract, they might still charter a vessel rather than simply book space on a ship running a liner service: they will do this if, apart from organising the carriage of their own goods, they wish to participate in the freight market by carrying other shippers’ goods for profit. Finally, the charterer of a vessel may not be a shipper of goods at all; they may simply be providing a freight service to shippers of goods by putting the vessel up as a ‘general ship’, in which case they are unlikely to be, at any rate initially, a party to a sale contract involving goods carried on the vessel they charter.

8.3

Functions of Bills of Lading and of Charterparties As to the relationship between a charterparty and a bill of lading, a charterparty is not a receipt for goods and neither is it a document of title (unlike a bill of lading). A charterparty is a contract of carriage between a shipowner and a charterer for the use of a vessel for a given voyage or for a stipulated time. It is a contract of carriage – and only a contract of carriage. There is nothing in a charterparty which looks remotely like a representation by the shipowner that goods have been shipped on board the vessel in a given quantity and in apparent good order and condition. Neither does a charterparty entitle anyone through its transfer to claim possession of the goods on discharge: its transfer passes no proprietary interest in the goods. A bill of lading, on the other hand, can perform both of those functions in addition to its providing evidence of the terms of a contract of carriage.

8.4

Structure of This Chapter In terms of bills of lading issued to charterers (or which end up in the hands of charterers), two things can happen to the bill of lading: the bill can be held (a) by the charterer, or (b) by a third party. This raises at least three issues: (i)

In either scenario, one needs to identify which document – charterparty or bill of lading – bears the contractual terms of carriage. This issue arises whether the bill of lading is held by the charterer or by a third party.

(ii)

One needs to identify the carrier. This only arises in situation (b), that is to say, where the bill of lading has reached the hands of a third party. (In situation (a), where the bill of lading is in the hands of a charterer, it is clear that the person from whom the charterer has chartered the vessel – normally, but not necessarily, the owner – is the charterer’s carrier.) 203

8.5

8.6

Tender of Bills of Lading Under Charterparties

(iii) One needs to know the strength of the bill of lading as a receipt. This issue arises, again, in both situations (a) and (b): both the charterer and a bill of lading holder who is not a charterer are interested in the strength of the statements contained in the bill of lading as to the quantity and apparent condition of the goods on shipment. The receipt function of the bill of lading when in the hands of a trader who has not chartered the vessel on which the goods are shipped – ie in situation (b) – has been discussed in Chapter 6. Here, we shall be looking at the same function where the facts are complicated by the circumstance that the bill of lading holder also happens to be the charterer of the vessel on which the goods are shipped – ie in situation (a).

UNDER WHICH CONTRACTUAL TERMS IS THE BUYER TO SUE THE CARRIER? 8.6

Both the carrier and the buyer need to know which of the two documents, the charterparty or the bill of lading, governs the contractual relationship between them, and this for two reasons: (1)

There is always an advantage sought by one party in one document which the other party tries to frustrate by pleading that the other document is the contractual document, and the resolution of the dispute will, therefore, depend on which of the two documents governs. Thus, for example, the shipowner might be after the protection of an exclusion clause which exists in the bill of lading but not in the charterparty1; or the charterers might be attempting to escape from a time-bar which obstructs their action if the bill of lading applies, but not if the charterparty applies2.

(2) Both parties need to know whether or not COGSA  1971 applies to any cargo claims which might arise between them. That Act does not apply to charterparties, unless it is expressly incorporated therein3; the Act does, however, apply to a bill of lading issued under a charterparty where the bill governs the contractual regime4 between the parties5. Thus, the parties 1 2 3

4 5

As in Rodocanachi, Sons & Co v Milburn Bros (1887) 18 QBD 67. As in The President of India v Metcalfe Shipping Co Ltd [1970] 1  QB  289, where the charterparty contained an arbitration clause with no time-bar. Had the bill of lading prevailed, the charterers would have been defeated by the one-year time-bar of the Hague Rules. See COGSA 1971, Sch art V, the relevant part of which reads: ‘The provisions of these Rules shall not be applicable to charter parties’. As indicated in the text above, the Rules may, of course, be incorporated expressly into the charterparty; they may also be incorporated in part: see, for example, Shellvoy 4, clause 37. It will be argued, at paras 8.26–8.27 below, that the Act may also be relevant to the receipt function of a bill of lading issued under a charterparty. See COGSA 1971 Sch art I(b), the relevant part of which lays down that the Rules will apply to ‘any bill of lading … issued under or pursuant to a charter party from the moment at which such bill of lading … regulates the relations between a carrier and a holder of the same’.

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Under Which Contractual Terms is the Buyer to Sue the Carrier?

8.8

need to know whether the bill, rather than the charterparty, regulates the relationship between them; for upon this depend other important questions, such as the application of exclusion or limitation clauses or of time-bars contained in COGSA 1971 (which applies the Hague-Visby Rules). For all these reasons, the parties need to know which document provides them with their contractual framework for the resolution of cargo claims and, as indicated above, analysis of the question is assisted by examining it in each of the two situations just discussed: (a) where the bill of lading is held by a charterer; and (b) where the bill of lading is held by a third party.

(a)  Where the Bill of Lading is in the Hands of the Charterer A charterer who is party to a sale contracted on shipment terms may come to hold a bill of lading in one of two ways: (a)

the shipowner may issue the bill directly to the charterer; or

(b)

a charterer may also come to hold a bill of lading issued by the shipowner in a second, rather less direct, way: the bill of lading might have been issued by the shipowner to the shipper of the goods and the latter could then have transferred the bill to the charterer.

8.7

Where the Bill of Lading is Passed From the Shipowner to the Charterer Directly, the Charterparty Governs A bill of lading is likely to be issued by the shipowner directly to the charterer where the sale contract is concluded either on CIF terms and the seller takes a bill of lading for goods carried on the vessel which they has chartered; or on FOB terms and the buyer, who has chartered the vessel, takes a mate’s receipt from the seller, which receipt they then exchange for a bill of lading with the carrier6. It is clear on authority that any dispute between the charterer and the shipowner is regulated in these circumstances by the terms contained in the charterparty. The leading authority for this proposition is Rodocanachi, Sons & Co v Milburn Bros7, where it was held that a shipowner could not avail themselves of an exclusion clause in a bill of lading in a cargo claim brought by the plaintiff charterer to whom the defendant had issued the bill. The bill of lading was clearly here a receipt for the goods shipped and a document of title: indeed after the charterparty had been concluded, the charterer sold the goods, presumably by transferring the bill 6

7

The shipowner would normally be expected to issue a mate’s receipt, rather than a bill of lading, to the party who actually loads the goods, namely the seller, who would then pass the receipt to the buyer, who could in turn exchange it for the bill of lading with the shipowner. This is why Incoterms 2020 defines the relevant documentary duties of the FOB seller as to ‘provide the buyer, at the seller’s cost, with the usual proof that the goods have been delivered’ and that the seller must provide ‘assistance to the buyer, at the buyer’s request, risk and cost, in obtaining a transport document’. See FOB A6. (1886) 20 QBD 67 and other cases cited in Benjamin, para 18–077, footnotes 639 and 640.

205

8.8

8.9

Tender of Bills of Lading Under Charterparties

of lading. The bill did not, however, provide evidence of the contractual terms between the parties. In the slightly later case of Leduc v Ward8, Lord Esher put it in these words: ‘[W]here there is a charterparty, as between the shipowner and the charterer the bill of lading may be merely in the nature of a receipt for the goods, because all the other terms of the contract of carriage between them are contained in the charterparty; and the bill of lading is merely given as between them to enable the charterer to deal with the goods while in the course of transit.’

Where the Bill of Lading is Issued to a Shipper and Then Passed on to a Charterer 8.9

A charterer may also come to hold a bill of lading issued by the shipowner in a second, rather less direct, way: the bill of lading might have been issued by the shipowner to the shipper of the goods and the latter could then have transferred the bill to the charterer. This situation can arise in two types of case: (a)

In the first, which we shall call case 1 for ease of reference, the shipper sells goods to the charterer on FOB terms and the shipowner issues a bill of lading directly to the shipper, who then transfers it to the buyer-charterer9.

(b) In case 2, the charterer runs the vessel as a general ship, loading goods belonging to other shippers; bills of lading are issued to each of these shippers; the charterer subsequently, and during transit, buys goods covered by one of the bills from one of the shippers. Statements as to which document, the charterparty or the bill of lading, governs the contract of carriage between the buyer-charterer and the shipowner where the charterer has come by the bill indirectly have failed adequately to distinguish between the situations in case 1 and in case 2. The turning point for the major textbooks in the field came in 1969, when the Court of Appeal delivered its judgment in The President of India v Metcalfe Shipping

8 9

(1888) 20  QBD  475 at 479. Lord Esher was a member of the court both in this case and in Rodocanachi v Milburn (see fn 1 above). This manner of proceeding would fit precisely none of the three classes of FOB sales which Devlin J identified in Pyrene Co v Scindia Navigation Co [1954] 2 QB 402, as to which see para 1.18 above. On these facts, the contract of carriage has clearly been concluded by the buyer: they consequently fit neither the classic nor the extended forms of FOB sales. The facts are closest to the straight form of FOB sale, subject to this caveat. In the straight form of FOB sale, one would expect the mate’s receipt, rather than the bill of lading, to be given to the shipper, who would then pass the receipt to the buyer, who would then exchange it for the bill of lading with the shipowner: see fn 6 above. The facts described in the text arose nonetheless in The President of India v Metcalfe Shipping Co Ltd [1970] 1 QB 289 and it is, perhaps, unfortunate that this area of the law is dominated by a decision founded on somewhat special facts.

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Under Which Contractual Terms is the Buyer to Sue the Carrier?

8.10

Co Ltd10. Prior to the decision in that case, the editors both of Scrutton11 and of Carver12 took the view that, where a charterer took a bill of lading only indirectly from a shipowner, the bill of lading, rather than the charterparty, recorded the terms of the contract of carriage between the charterer and the shipowner. In the current editions of those works, though, the editors take the opposite view, namely that the charterparty prevails over the bill of lading as the contractual document13. Either conclusion, as an absolute, ignores the factual realities and the purpose of the bill of lading and/charterparty on the ground. Rather than compare the relative ‘strength’ of either document, it is more helpful to distinguish between the way in which these two documents are issued and used in practice, the role played by each document in different commercial relationships. This distinction is best illustrated by returning to cases 1 and 2 described above.

Case 1: Shipowner Issuing a Bill of Lading to a Seller-Shipper who Transfers the Bill of Lading to the Buyer-Charterer Case 1 envisaged a charterer buying goods FOB from a seller-shipper, the shipowner issuing a bill of lading to the seller-shipper, who then transfers the bill to the buyer-charterer. These were the facts in The President of India v Metcalfe Shipping Co Ltd14, where the shipowner unsuccessfully argued that a claim for damage to goods bought by the buyer-charterer was barred by a stipulation in the bill of lading: the charterparty was held by the Court of Appeal to contain the contract between the parties and that contract did not bar the charterer’s action. In case 1, the transfer of the bill of lading to the charterer is unconnected to the contract of carriage – the charterparty – previously concluded between the shipowner and the charterer. The transfer of the bill of lading is a direct result of the contract of sale between the seller and the buyer; none of the parties, seller, buyer and perhaps least of all the shipowner, intend the bill of lading to supplant the charterparty as the contract of carriage which the shipowner has concluded with the charterer. The buyer in this case already has a contract of carriage, the charterparty; all the charterer expects – and is entitled – to obtain on transfer of the bill of lading is a receipt and a document of title and that, indeed, is all they got in the President of India15 case. In case 1, so far as concerns the buyer’s relationship with the shipowner, once a charterer always a charterer and nothing but a charterer. 10 11 12 13

[1970] 1 QB 289. 17th edn, p 46. Carver: Carriage By Sea (13th edn), p 340. Carver on Bills of Lading, paras 5–055 to 5–057. The editors of Scrutton at para  6–002 are somewhat more circumspect, suggesting that ‘Where the charterer becomes indorsee of a bill of lading, originally issued to a shipper other than the charterer, the bill of lading does not modify or vary the terms of the charterparty, at least where the charterparty provides that bills of lading are to be signed “without prejudice to this charterparty”’: see art 52. It is, however, doubtful whether the ratio of the President of India case can be limited in this way: see Intercontinental Export Co (Pty) Ltd v MV Dien Danielsen 1982 (3) SA 534, reversed on other grounds at 1983 (4) SA 275. 14 [1970] 1 QB 289. 15 Ibid.

207

8.10

8.11

Tender of Bills of Lading Under Charterparties

Case 2: Charterer Running Ship as a General Ship Purchases Bill of Lading 8.11

Case 2 is materially different. Here, the charterer starts life off as nothing but a charterer. They run the vessel as a general ship for the benefit of other shippers and for their own profit. However, the charterer then buys a parcel of goods covered by a bill of lading from one of those shippers. The shipowner’s contracts of carriage with the shippers and their buyers are, respectively, evidenced by and contained in16 the bill of lading. Why should the fact that one of those buyers happens also to be the charterer make any difference? It is true that the charterer already has a contract of carriage with the shipowner so far as concerns their use of the whole vessel; but they have also now bought another contract of carriage together with and covering a particular parcel of goods. The notion that the charterer in this case may have two contracts of carriage with the same shipowner appears strange only if the difference between the commercial purposes of the two contracts is ignored. The charterer negotiated the charterparty to regulate their use of the whole vessel as a commercial operation. The buyer of the particular bill of lading bought a particular parcel of goods which they legitimately expected would bring with it a particular regime of rights and duties. The fact that the charterer of the vessel and the buyer of the goods are both the same person does not alter the rather more important fact that they have made two contracts with the shipowner for two quite different purposes. It is not so much a question of whether the charterparty or the bill of lading applies, as much as when the charterparty or the bill of lading applies. Thus, where the dispute between the parties relates, say, to the payment of hire, then clearly the charterparty applies; but where the dispute relates to short-delivery of or damage to the cargo bought by the charterer, then equally clearly the bill of lading applies. Steamship Calcutta Company, Limited v Andrew Weir & Co17, an authority upon which the textbooks based their earlier view, was just such an illustration of case 2: the court there held that the bill of lading applied to a dispute between the charterer and the shipowner relating to the condition in which the cargo pledged to the charterer was landed18. The case is, therefore, distinguishable from, and was indeed so distinguished in, the President of India case.

What is the Bill of Lading Doing in the Buyer-Charterer’s Hands? 8.12

The crux of the matter, then, is this: did the bill of lading come to the charterer simply to perform functions – as a receipt and as a document of title – which a pre-existing contract of carriage – the charterparty – could not itself perform; or did the bill reach the charterer as a buyer of goods through a contract of 16 See, generally, paras 7.4 and 7.5 above. 17 [1910] 1 KB 759. 18 The consequence, on the facts of the case, was that the shipowners were exempted from liability for damage to the goods.

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Under Which Contractual Terms is the Buyer to Sue the Carrier?

8.13

sale independent of the original charterparty concluded between the buyer, as charterer, and the shipowner? If the former is the case, the charterparty governs the entire contractual relationship between the shipowner and the charterer; if the latter, the charterparty or the bill of lading can provide contractual terms for the resolution of disputes between the parties, the choice of regime depending on the subject matter of the particular dispute concerned. This statement of the law is altogether more sensitive to the real commercial expectations of all three parties involved than either of the rigid views adopted both before and after 1969 in the major works19. Moreover, the view here expressed heeds the warning given by Fenton Atkinson LJ in The President of India v Metcalfe Shipping Co Ltd20, namely that: ‘the relations between shipowners, charterers and shippers respectively are to be determined as a question of fact upon the documents and circumstances of each particular case’.

(b)  Where the Bill of Lading is in the Hands of a Third Party Contract Contained in the Bill of Lading Where the sale is concluded on CIF terms and the seller charters the vessel on which the goods are carried, taking a bill of lading and transferring it to the buyer, the buyer is obviously a third party to a charterparty between the shipowner and the charterer21. It follows inexorably from the doctrine of privity that the contractual relationship between the buyer and the carrier cannot be governed by the charterparty. It is equally clear, though, that the transfer of the bill of lading from the seller to the buyer can, through COGSA 1992 s 2, transfer rights of suit under that bill of lading only insofar as that bill evidences or contains such rights of suit between the shipowner and the seller22. That section transfers rights of suit but it does not create them: if the bill of lading performs no contractual function on its issue23, then there is no contractual function for the bill to transfer. Thus, it seems to follow that the shipowner and the buyer have no contract of carriage binding them the one to the other. 19 There may well be cases which are difficult to place into one or other of the two cases. Thus, where a shipper-charterer who sells their goods by transferring the bill of lading and then buys them again from the same buyer, the facts partake of case 1 in the sense that the bill of lading was originally issued to the charterer simply as a receipt and a document of title; but they also partake of case 2 in the sense that the bill eventually returns to the charterer as a result of a totally independent contract of sale, transferring goods, documents and contractual rights and liabilities relating to those goods. In our view, a cargo dispute between the shipowner and the charterer would be governed by the bill of lading, rather than by the charterparty, the facts being considerably closer to case 2. 20 [1970] 1 QB 289 at 310. 21 The buyer may also find that they are not privy to a charterparty concluded by the shipowner when the sale is on FOB terms: see fn 28 below. 22 See COGSA 1992 ss 2(1) and 5: the rights transferred are those contained in or evidenced by the bill of lading. 23 The contract of carriage between the shipowner and the seller-charterer is, as we have seen, contained in the charterparty: Rodocanachi, Sons & Co v Milburn Bros (1886) 20 QBD 67.

209

8.13

8.13

Tender of Bills of Lading Under Charterparties

Such a result would create enormous commercial inconvenience and would effectively frustrate the purpose of COGSA 1992 in the context of commodity trading where it is common for seller-charterers to transfer bills of lading to buyers expecting those bills to carry with them rights of suit independent of the seller’s charterparty with the carrier. It will, therefore, cause little surprise that, where similar arguments were put forward on the basis of the predecessor of COGSA  1992, namely BLA  1855, the courts cavalierly but sensibly brushed aside this inconvenient and technical difficulties in ‘transferring’ rights where none previously existed24. Thus in Leduc v Ward25, Lord Esher said, without but a sidelong glance at this difficulty: ‘where the bill of lading is indorsed over, as between the shipowner and the indorsee the bill of lading must be considered to contain the contract, because the former has given it for the purpose of enabling the charterer to pass it on as the contract of carriage in respect of the goods.’ When Hain S S Co v Tate & Lyle, Ltd26 reached the House of Lords, Lord Atkin put paid to any notion that the shipowner and the receiver of goods could be thrust asunder by anything so technical as the transfer of rights that did not previously exist; at page 620 of the report, he says: ‘The consignee has not assigned to him the obligations under the charterparty nor, in fact, any obligation of the charterer under the bill of lading, for ex hypothesi there are none. A new contract appears to spring up between the ship and the consignee on the terms of the bill of lading.’ The law on this point, then, is clear27: where the buyer is not privy to the charterparty between the seller and the shipowner, the buyer’s contract of carriage is contained in the bill of lading28.

24 The textbook writers have been slightly less cavalier with the doctrine than the courts: for a valiant attempt at a technical escape from a technical problem, see Scrutton, article 53 at paras 6–014 to 6–015. 25 (1888) 20 QBD 475 at 479. 26 (1936) 52 TLR 617. 27 See, in the same vein, Scrutton where it is suggested, at article 53 at para 6–015, that ‘the true meaning is that the lawful holder has vested in him all rights of suit “as if there had been a contract in the terms contained in the bill of lading and he had been a party to that contract”’. 28 The buyer may also be a third party to a charterparty concluded by the shipowner where the sale contract is on FOB terms. Thus, where the buyer subcharters a vessel from a charterer, and receives, whether directly from the shipowner or indirectly through the seller who ships the goods, a bill of lading issued by the shipowner, the only document to which both the shipowner and the buyer are privy is the bill of lading, there being no charterparty to which they are both party. In these circumstances, it has been held repeatedly – and again, it should be said, with hardly any argument taken on the point – that the bill of lading creates a new contractual nexus between the shipowner and the subcharterer: see The SLS Everest [1981] 2 Lloyd’s Rep 389; The Nai Matteini [1988] 1 Lloyd’s Rep 452; and The Kostas K [1985] 1 Lloyd’s Rep 231, where the subcharterer was not, however, the buyer of the cargo.

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Under Which Contractual Terms is the Buyer to Sue the Carrier?

8.15

(c)  Incorporation of Charterparty Clauses Into Bills of Lading Legal Questions Raised by Incorporation While the terms of the contract of carriage between a non-charterer bill of lading holder and the carrier are clear if they are all contained within the bill of lading itself, they are not so clear if the bill of lading purports to incorporate terms from the charterparty. Where the bill of lading contains an incorporation clause referring to the charterparty, the question arises: are all the terms of the charterparty transferred to the contract between the buyer and the shipowner29; and if not, then which terms are incorporated? These questions have attracted litigation in a good number of cases, some of which relate to the incorporation of charterparty clauses in general, and others to the incorporation of charterparty arbitration clauses in particular. The broad principles governing incorporation of either type of charterparty clause are the same; nonetheless, their application to arbitration clauses requires detailed and separate treatment. We shall consequently deal with incorporation under two heads: incorporation in general, and incorporation of arbitration clauses.

8.14

Incorporation in General Whether a particular clause in a charterparty is effectively incorporated by a clause in a bill of lading seeking to do so depends on satisfying all the following three criteria30: (1)

the incorporation clause in the bill of lading must be apt to describe the clause in the charterparty sought to be incorporated;

(2)

the clause must make sense within the context of the bill of lading, within a limited degree of verbal manipulation31; and

29 See, for instance, The Dolphina [2012] 1 Lloyd’s Rep 304 (High Court of Singapore) at 327 rhc, where the clause ‘all conditions, liberties and exceptions whatsoever of [the Charterparty]’ was wide enough to incorporate all provisions of the charterparty which were directly germane and material to the shipment, carriage and delivery of the cargo covered by the bill of lading in question (ie  conditions). In that case, a choice of law clause in the charterparty providing for English law to govern the dispute was also held to be a condition. Explained: ‘I  agreed with Sir Boyd Merriman that it would not be sensible to incorporate those [charterparty] provisions into [the bill of lading] but ignore the fact that they were intended (in their original setting in the [--] Charterparty) to be governed by English law. Indeed, I was prepared to go further and conclude that clause 32 was itself a “condition”, for it provided a system of law by which the other conditions (ie provisions in respect of the shipment, carriage and delivery of the [bill of lading] Cargo) were to be construed for their meaning, scope and effect’. 30 See Carver on Bills of Lading, paras 3.014–3.045 and Scrutton at article 54. 31 See The Indian Reliance [1997] CLC 11 at 17–19. See also Caresse Navigation Ltd v Zurich Assurances Maroc and Others (The Channel Ranger) [2015] 1 Lloyd’s Rep 256 where a ‘law and arbitration’ clause was clearly a mistake and a ‘law and jurisdiction’ clause was still validly incorporated.

211

8.15

8.16 (3)

Tender of Bills of Lading Under Charterparties the clause, if incorporated, must be consistent with other clauses in the bill of lading.

If all three questions can be answered affirmatively, then the clause is incorporated into the bill of lading and is part of the contract of carriage between the carrier and the holder of the bill; if any of the questions attracts a negative answer, then the clause is not incorporated. The first and the last questions have received the greatest amount of attention in the case law: they have been called the ‘description’ and the ‘consistency’ questions and they appear first to have been articulated in this form by Staughton J in The Emmanuel Colocotronis (No 2)32. Each raises its own problems, which will be examined in turn. The Description Question 8.16

The first question – that relating to the issue of ‘description’ – raises three issues: (1)

Although it is clear that the starting point must be the incorporation clause actually on the bill of lading, is it legitimate also to look at any clause, in the charterparty itself, which clause identifies those charterparty clauses which are to be incorporated into the bill of lading? Thus, for example, in The Garbis33, the bill of lading sought to incorporate ‘all the terms whatsoever’ of the charterparty; yet, the charterparty appeared to restrict the terms of that incorporation by listing a number of clauses which were to be incorporated into any bill of lading issued thereunder. On these facts, were the wide terms of description contained in the bill of lading to be limited by the specific instructions as to incorporation given by the charterparty? Goff J decided that the bill of lading incorporation clause could not be so limited34.

(2)

What types of charterparty clause are aptly described, for the purposes of incorporation, by general terms of incorporation in the bill of lading: is it

32 [1982] 1 Lloyd’s Rep 286, at 289. The Court of Appeal declined to follow this case in The Varenna [1983] 2 Lloyd’s Rep 592: the point of disagreement related to the particular answer given by Staughton J  to his own second question – consistency – in the context of the attempted incorporation of an arbitration clause into a bill of lading, as to which see fn 46 below. The Court of Appeal cast no aspersions on Staughton J’s general approach to issues of incorporation: indeed, the judge’s two questions were again used by Donaldson MR in The Miramar [1984] 1 Lloyd’s Rep 142 at 143, a judgment which met with the approval of the House of Lords at [1984] 2 Lloyd’s Rep 129; the Court of Appeal was presided over by Donaldson MR both in The Varenna and in The Miramar. See also The Nerano [1996] 1 Lloyd’s Rep 1. 33 [1982] 2 Lloyd’s Rep 283, particularly at 288. 34 Cf The Emmanuel Colocotronis (No 2) [1982] 1 Lloyd’s Rep 286 at 292, per Staughton J, who clearly thought it legitimate to examine also the incorporation clause contained in the charterparty. The Court of Appeal in The Varenna, though, preferred the view taken by Goff J: see [1983] 2 Lloyd’s Rep 592 at 594–6. The fact that one ought only to look at the incorporation clause in the bill of lading in order to see whether a charterparty clause is incorporated does not, however, mean that one cannot look at other, non-incorporated clauses in the charterparty in order to construe the incorporated charterparty clause. See Tradigrain SA v King Diamond Shipping SA (The Spiros C) [2000] 2 Lloyd’s Rep 319 at [77]–[78].

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8.16

all types of charterparty clause, for example, the safe port warranty or a clause stipulating for the payment of bunkers, or is it a more limited type of clause? The answer is35: ‘that general words of incorporation in a bill of lading may be effective to incorporate terms of an identifiable charter-party which are relevant to the shipment, carriage and discharge of the cargo and the payment of freight.’ (3)

Where the bill of lading covers goods carried on a vessel which is subject to more than one charterparty36, which charterparty does the incorporation clause refer to where that charterparty is not explicitly identified? The answer is that, where no charterparty is specifically identified in the bill of lading37, the clause will normally be taken to refer to the head-charter38, at any rate unless the particular circumstances of the case indicate otherwise39.

There could be a further situation where the vessel is sub-voyage-chartered to two entities, not in a vertical chain, but instead where the carrier is chartering the vessel to two voyage-charterers simultaneously, with each having access to a certain portion of the vessel on a pro rata basis depending on the amount of freight payable. Again, if there is no explanation on the bill of lading as to which charter governs, it is likely to be the head-charter.

35 The Garbis [1982] 2 Lloyd’s Rep 283 at 287; see also other cases cited in Scrutton, at article 37, footnotes 36 and 37, and, generally, article 39; for a general review of the authorities, both on incorporation in general and on incorporation of arbitration clauses, see Donald A  Davies ‘Incorporation of Charterparty Terms into a Bill of Lading’ 1966  JBL  326; E  A  Marshall ‘Incorporation of Arbitration Clauses into Charterparty Bills of Lading’ 1982  JBL  478; and W  J  Park ‘Incorporation of Charterparty Terms into Bill of lading Contracts – a Case Rationalisation’ (1986) 16 VUWLR 177. 36 That is to say, where the vessel has been chartered and subchartered, possibly a number of times. 37 The charterparty does need to have been concluded even if only drawn up at the time of the issue of the bill of lading in the form of a recap telex: Welex AG v Rosa Maritime Ltd (The Epsilon Rosa) [2003] 2 Lloyd’s Rep 509. 38 The Sevonia Team [1983] 2 Lloyd’s Rep 640, at 644; The San Nicholas [1976] 1 Lloyd’s Rep 8, at 11; The Nai Matteini [1988] 1 Lloyd’s Rep 452 at 459; and The Heidberg [1994] 2 Lloyd’s Rep 287 at 311–3. 39 Thus, see, for example, The SLS  Everest [1981] 2 Lloyd’s Rep 389, where the Court of Appeal upheld Lloyd J’s decision that the incorporation clause must be taken to refer to the subcharter, a voyage-charter, rather than to the head-charter, a time-charter, on the ground that many of the clauses contained in a time-charterparty would be inapposite to a bill of lading covering the carriage of goods on a certain voyage (see Carver on Bills of Lading, para 3.026); also in this sense, Kerr J in The Nanfri [1978] 1 Lloyd’s Rep 581 at 591. This manner of reasoning elides the ‘description’ and the ‘consistency’ questions and asks not whether particular clauses are relevant to the carriage of cargo, but whether a whole charterparty or type of charterparty (eg voyage charterparties) is more relevant to such carriage than other charterparties or types of charterparty (eg time charterparties); moreover, it destroys the certainty achieved by the simpler rule that the incorporation clause must be taken to refer to the head-charter where another charterparty is not specifically identified in the clause.

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The Consistency Question 8.17

The third question – that relating to ‘consistency’ – raises the following problem: in deciding whether the clause sought to be incorporated is consistent with the other clauses contained in the bill of lading, to what degree is it permissible for the judges so to construe the particular charterparty clause as to iron out any inconsistency with the bill of lading? This issue has arisen largely, but not exclusively, in the context of cases relating to the incorporation of arbitration clauses from charterparties into bills of lading and it will consequently be discussed under that heading.

Incorporation of Arbitration Clauses 8.18

Litigation regarding the incorporation of charterparty clauses into bills of lading has revolved largely around whether arbitration clauses in charterparties have been effectively incorporated into bills of lading. The practical significance of this issue can hardly be overstated: for the reverse side of the question ‘Does this arbitration clause apply?’ is the question ‘Can this claim currently before the court be stopped?’40. Where the incorporation clause refers specifically to the arbitration clause contained in the charterparty, then the arbitration clause is incorporated into the bill of lading, at any rate unless it is inconsistent with an arbitration clause contained in the bill of lading itself41. Where, however, the incorporation clause in the bill is drawn in general terms, then the charterparty arbitration clause needs to negotiate the same hurdles of description and consistency as would any other charterparty clause. Thus, the incorporation clause must be drawn in terms wide enough to include an arbitration clause and, secondly, the charterparty arbitration clause must clearly be intended to apply both to disputes arising under the charterparty and to disputes arising under the bill of lading.

40 See, for example, The Varenna [1983] 2 Lloyd’s Rep 592, where a shipowner brought a claim for demurrage against the shippers and against the consignees, holders of the bill of lading containing an incorporation clause. 41 An example of a charterparty arbitration clause which, though specifically referred to in the bill of lading incorporation clause, was inconsistent with the bill of lading itself can be found in the Canadian decision in The Roseline 1985 AMC 551. There, the charterparty arbitration clause referred disputes to Paris, whereas the bill of lading referred disputes to the Federal Court of Canada; the incorporation clause specifically incorporated the charterparty incorporation clause. An action by the shipowners against the sellers, named as shippers in the bill of lading, for a declaration that the parties were bound by a contract referring disputes to French arbitration failed on the ground that there was no contract between the shipowners and the sellers. It is difficult to see how a party named as shipper in the bill is not a party to the contract of carriage recorded in the bill: see Benjamin, para 18–073. The same result might have been achieved – the declaration refused – on a much narrower and, it is submitted, more correct ground, namely that the charterparty arbitration clause was not part of any contract between the seller and the shipowner: despite its specific mention in the incorporation clause, it failed the consistency hurdle because it was flatly contradicted by the relevant clause in the bill of lading.

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8.18

This last statement of the law conceals a number of issues which have been keenly litigated. Thus, for example, what general words of incorporation would aptly describe an arbitration clause? (a)

It is settled law that the word ‘conditions’42 in the incorporation clause does not adequately describe an arbitration clause, because an arbitration clause is not a term relating to the shipment, carriage and discharge of the cargo; consequently, the incorporation of the arbitration clause fails on the hurdle of ‘description’: The Varenna43.

(b)

It is not quite so clear, however, whether the use of the word ‘terms’ in the incorporation clause is similarly inadequate to incorporate an arbitration clause44. Again, how clearly must the intention appear in the charterparty arbitration clause that the clause is to apply both to disputes arising under the charterparty and to those arising under the bill of lading? If the clause expressly says so in terms, then the clause would, if incorporated, fit the bill of lading perfectly and there would be no inconsistency between the clause and the bill of lading. Equally, where the arbitration clause applies in terms to ‘disputes under this charterparty’, it does not fit neatly into the bill of lading and the courts will not manipulate the word ‘charterparty’ to mean ‘bill of lading’45. On the other hand, where the arbitration clause applies to ‘disputes under this contract’, it is not certain on the current state of the authorities whether the courts will construe the words ‘this contract’ to include the bill of lading as well as the charterparty46.

Peculiarly, these charterparty rules of incorporation are materially different from the normal rules of incorporation in general contract law (for which, see

42 A word described by Donaldson MR as ‘a chameleon-like word which takes its meaning from its surroundings’: see The Varenna [1983] 2 Lloyd’s Rep 592 at 595. 43 Ibid. To this extent, The Varenna clearly overrules Staughton J’s judgment in The Emmanuel Colocotronis (No 2) [1982] 1 Lloyd’s Rep 286. 44 See The Varenna [1983] 2 Lloyd’s Rep 592 at 597 and the authorities there cited. See also the Court of Appeal judgment in The Miramar [1984] 1 Lloyd’s Rep 142, where, at p 143, Donaldson MR suggests that the phrase ‘all the terms whatsoever’ were wide enough aptly to describe all the terms of the charterparty; it must be said, though, firstly, that the clause sought to be incorporated in The Miramar was not an arbitration clause; and secondly, that the clause was not in that case incorporated because it failed the consistency test. 45 Hamilton v Mackie (1889) 5 TLR 677. For a more recent indication of judicial attitudes, see the House of Lords judgment in The Miramar [1984] 2 Lloyd’s Rep 129, a case which did not relate to an arbitration clause, but one which was clearly based on a somewhat restrictive attitude to ‘verbal manipulation’ of charterparty clauses, an attitude which, per Gatehouse J  in The Nai Matteini [1988] 1 Lloyd’s Rep 452, must be taken to apply equally restrictively to the incorporation of arbitration clauses. The phrase ‘verbal manipulation’ is ascribed by Gatehouse J in The Nai Matteini [1988] 1 Lloyd’s Rep 452 at 456, to Russell LJ in The Merak [1964] 2 Lloyd’s Rep 527 at 537. See also The Nerano [1996] 1 Lloyd’s Rep 1. 46 Staughton J construed the phrase to encompass both disputes under the charterparty and those under the bill of lading: The Emmanuel Colocotronis (No 2) [1982] 1 Lloyd’s Rep 286 at 289 and 292; however, this aspect of Staughton J’s judgment was disapproved of by the Court of Appeal in The Varenna [1983] 2 Lloyd’s Rep 592.

215

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the contract law textbooks such as Chitty on Contracts)47. There appears to be no obvious justification for why the incorporation of a charterparty term into a bill of lading should be subject to a different test to, for example, incorporation of a charterparty term into a sale contract. Nevertheless, the difference remains. In our view, there is no clear policy reason for such sui generis treatment of charterparty incorporation. The difference appears simply to have resulted from a slow divergence of case law over the years. The difference does, however, mean that, with the right case, the traditional position might potentially be challenged. Practical Significance of Incorporation 8.19

Having considered those general principles, it would be helpful to point out why it is important in practice to determine which charterparty clauses are transferred into the bill of lading by an incorporation clause in the latter document. There are two main reasons why the parties to a contract of carriage need to establish in general which document, the charterparty or the bill of lading, regulates their contractual relationship: first, to discover which terms can be availed of by either party to a cargo dispute; and secondly, to establish whether their contract of carriage is subject to COGSA 1971. In the hypothesis being examined here, we have already seen that the bill of lading governs the contractual relationship between the carrier and the third party: the issue is not, therefore, which document governs, but which parts of the charterparty find their way into the governing document, ie the bill of lading. The practical significance of this issue can be explained nonetheless by the same two reasons given above. Thus, starting with the first reason, which terms apply, consider the following example. If the discharge port in a bill of lading is described simply ‘As Per Charter Party’, the carrier discharges their duty to deliver to the buyer by unloading the goods at the charterparty destination if the incorporation of the charterparty destination into the bill of lading is effective; and this, despite the fact that the buyer expected delivery at quite a different port under their contract of sale48. Consequently, the resolution of a dispute between the buyer and the carrier as to delivery will depend on whether incorporation has been effective. Moving to the second reason, namely whether COGSA  1971 applies, we have seen that COGSA 1971 applies to bills of lading issued under a charterparty from the moment at which it becomes a contract between the carrier and the third party49. Where charterparty clauses are effectively incorporated into the bill of lading, they too become subject, like all the other clauses in the bill, to the 1971 Act, which in article III.8 of the Schedule to the Act renders ‘null, void and of 47 Chitty on Contracts (33rd edn), para 13–008 et seq. 48 This is why, of course, the same facts, which occurred in SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53, raise issues of tender between the seller and the buyer, which issues will be discussed at paras 8.32–8.33 below. 49 See COGSA 1971 Sch art I(b), reproduced at fn 5 above.

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Whom is the Buyer to Sue for Short-Delivery or Damage to Goods?

8.20

no effect’ any term seeking to reduce the carrier’s liability to a level beneath that provided for in the Act. Thus, any charterparty clause effectively incorporated into a bill of lading will be struck down by article III.8 if it comes to grief upon some other article of the Hague-Visby Rules: a six-month time-bar in the charterparty would, for example, give way to the one-year time-bar in the Rules50. The Act thus has a direct impact on effectively incorporated charterparty clauses, and this despite the fact that it does not generally apply to charterparties51.

WHOM IS THE BUYER TO SUE FOR SHORTDELIVERY OR DAMAGE TO GOODS? IE WHO IS THE CONTRACTUAL CARRIER? Identity of the Carrier Where the bill of lading is held by a third party to a charterparty, for example by a buyer of goods on CIF terms where the goods are carried on a vessel chartered to the seller, the buyer’s contract of carriage with the carrier is very clearly contained in the bill of lading rather than in the charterparty52. Clearly, though, the buyer needs to pursue their cargo claim not only on the basis of the right contract but also against the right defendant. Indeed, in a sense, both issues – the identity of the buyer’s contractual terms of carriage and the identity of the carrier – are part of the same question: what links this cargo claimant by way of contract to this defendant? The problem is caused by there being at least two possible contenders for the title of carrier, namely the shipowner and the charterer53. The buyer must get the right defendant within their sights, if only because time (and expense) wasted in pursuing the wrong party might extinguish any possible remedies they might have against the proper defendant54. Moreover, it is conceivable that a buyer on CIF terms may find that their seller, charterer of the vessel on which the goods were shipped, is also their carrier55; consequently, the buyer may need to pursue remedies both under the contract of carriage and, in the alternative under the contract of sale, against the same defendant and in the same case56. 50 See COGSA 1971 art IV.5. 51 See COGSA 1971 Sch art V, the relevant part of which is reproduced at fn 3 above. 52 See at para 8.13 above. Although, of course, as we have seen, certain parts of the charterparty may be incorporated into the bill of lading through an appropriate incorporation clause in the bill of lading. 53 Although the party who is the carrier is hardly likely, if liable, to appreciate the accolade. 54 As almost happened to the cargo-claimants in The Henrik Sif [1982] 1 Lloyd’s Rep 456: see para 8.23 below. 55 This would be the case, for example, where the seller has chartered a vessel on a demisecharterparty: see para 8.21 below. 56 Thus, the plaintiff could, as receiver, claim that the goods were not landed in the same condition as that in which they were shipped; and, failing that, the plaintiff could, qua buyer, claim that the goods were not shipped in such a state as to withstand the ordinary risks of transit: see Chapter 4 above.

217

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8.21

Tender of Bills of Lading Under Charterparties

Demise Charterparties and Cesser Clauses 8.21

Where the vessel is chartered by demise charterparty57, the carrier is likely to be the charterer58. By contrast, where the chartered vessel is put up by the charterer as a general ship, with the charterer fading out of the picture through the application of a cesser clause, the carrier is likely to be the shipowner. Walton J  identified these cases in Samuel & Co v West Hartlepool S N Co59: ‘There are certain more or less typical cases. For instance, there is the case … where the charterparty amounts to what is called a demise of the vessel. In such a case it is reasonably clear that the contracts with the shippers under the bill of lading are between them and the charterers and not between them and the owners. Again, there is another class of cases in which the charterers by the charterparty do no more than undertake that a full cargo shall be shipped and guarantee payment of a certain freight. In such cases it is very often stipulated that upon shipment of a full cargo and upon the charterers paying or securing payment in the manner agreed upon of the excess (if any) of chartered freight over and above the bill of lading freight the charterer’s liability under the charterparty is to cease. In such cases the contract of carriage under the bill of lading would ordinarily be between the owners and the shippers .… And between the two types or classes which I have described there is a great variety of intermediate cases.’

The Starsin60 – the Carrier is Identified From the Front of the Bill of Lading 8.22

In cases other than demise charterparties and charterparties containing cesser clauses, it has traditionally been difficult to draw guidance on the identity of the carrier from any one particular case. Two developments – one judicial, and the other in trade practice – have made the task of identifying the carrier considerably easier than it once was. It is clear since the decision of the House of Lords in The Starsin that a cargointerest looking to identify their carrier should be guided by the signature at the bottom of the bill of lading and the logo at the top and that, if that process identifies the carrier, then the person so identified will be the carrier irrespective 57 That is to say, where the charterer hires the ship itself, taking over control of the vessel from the owner, rather than simply contracting for its use, under the shipowner’s direction, over a certain period or for a certain voyage: see, generally, Scrutton, article 3 at para 1–009. 58 The Baumwoll Manufaktur von Carl Scheibler v Christopher Furness [1893] AC 8. 59 (1906) 11 Com Cas 115 at 125– 6. 60 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 1 Lloyd’s Rep 571. See also The Hector [1998] 2 Lloyd’s Rep 287 at 295–96; cf The Ines [1995] 2 Lloyd’s Rep 144 at 147–50 and The Flecha per Moore-Bick J in the Admiralty Court, 15 September (1996) unreported. For the position prior to The Starsin, see: (1906) 11 Com Cas 115 at 125; see also [1895] 2 QB 539, at 543; see also [1991] 2 Lloyd’s Rep 325 and [1998] CLC 902 at 909.

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8.22

of any contrary indication (for example, in a demise clause61, at any rate one contained on the reverse side of the bill of lading). Lord Bingham put it thus62: ‘I can well understand that a shipper or transferee of a bill of lading would recognize the need to consult the detailed conditions on the reverse of the bill in any one of numerous contingencies which might arise and for which those conditions make provision. He would appreciate that the rights and obligations of the parties under the contract are regulated by those detailed conditions. But I have great difficulty in accepting that a shipper or transferee of a bill of lading would expect to have to resort to the detailed conditions on the reverse of the bill (and to persevere in trying to read the conditions until reaching conditions 33 and 35) in order to discover who he was contracting with. And I have even greater difficulty in accepting he would expect to do so when the bill of lading contains, on its face, an apparently clear and unambiguous statement of who the carrier is.’ The second development, trade practice in the field of letters of credit, makes it far more likely than it ever had been that bills of lading will contain on their face ‘an apparently clear and unambiguous statement of who the carrier is’. Since 1994, when the UCP 500 came into effect, for a bill of lading to be accepted by document checkers under those rules the bill had to indicate on its face the name of the carrier and it also had to carry a signature either by the carrier or by the master or by an agent for either, in the latter case clearly indicating the name and the capacity of the party on whose behalf the agent was signing. The UCP 600 contain a similar requirement in Article 2063, so the requirement persists. The effect of this requirement under the UCP  600 is that bills of lading are much clearer regarding the identity of the carrier than previously (because they have to be for successful tender under letters of credit). It is true, of course, that the UCP 600 form no part of the resulting contract of carriage between the cargo interest and the carrier, but that is not the crucial point: the crucial point is

61 A demise clause is a clause contained in a bill of lading indicating to the holder who the carrier is. The clause has been well-received by the courts in this country; see The Berkshire [1974] 1 Lloyd’s Rep 185, at 187–8; The Vikfrost [1980] 1 Lloyd’s Rep 560; The Henrik Sif [1982] 1 Lloyd’s Rep 456; and The Jalamohan [1988] 1 Lloyd’s Rep 443. However, for a comparative, and hostile, study of the clause, see Tetley pp 607–13, 631–41. A similar cautionary note is struck in this country by FMB Reynolds at [1987] LMCLQ 259 and [1988] LMCLQ 285. For a more benign attitude, see JF Wilson Carriage of Goods by Sea (Pearson, 2008), pp 237–40; and Goode Commercial Law (6th edn), at para 36.18. 62 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 1 Lloyd’s Rep 571 at [15]. 63 ‘A bill of lading, however named, must appear to indicate the name of the carrier and be signed by: – the carrier or a named agent for or on behalf of the carrier, or – the master or a named agent for or on behalf of the master. Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent. Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.’

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that, because of requirements under letters of credit, as a consequence of trade practice, one of the old problems in the law of carriage of goods by sea has now become far easier to resolve. Again as Lord Bingham put it64, ‘it would be very surprising, and also (in my opinion) very unsatisfactory, if a practice accepted in one field65 were not accepted in another66 so closely related’.

Identity of the Carrier and Estoppel 8.23

Finally, the doctrine of estoppel might act to prevent the charterer of a vessel from denying that they are the carrier with whom the cargo-interest has contracted for the carriage of the goods. Thus, in The Henrik Sif67, timecharterers through their agents had allowed the plaintiff cargo-interests to believe that they were the disponent owners of the vessel and that they were, therefore, the proper defendants to the plaintiffs’ cargo claim; the plaintiffs consequently let their claim against the real shipowners be barred by the passage of time. Webster J  held that the time-charterers were estopped from denying that they were the proper defendants in the plaintiffs’ cargo claim, and this despite the fact that the bill of lading issued to the cargo-interests contained a demise clause.

THE BILL OF LADING AS A RECEIPT IN THE HANDS OF A CHARTERER Can a Charterer Demand a Bill of Lading With Unqualified Statements? 8.24

Our task in this section of this chapter is to examine whether a charterer is likewise entitled to demand from the shipowner, under COGSA 1971, a bill of lading containing firm, unqualified representations on the bill of lading as to the marks, quantity and apparent condition of the goods on shipment. The question needs to be examined in two hypotheses: first, where the charterer sells goods on CIF terms; secondly, where the charterer buys goods on FOB terms and the bill of lading is issued to the shipper and then transferred to the buyer68.

Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 1 Lloyd’s Rep 571 at [16]. That is, letters of credit. That is, carriage of goods by sea. [1982] 1 Lloyd’s Rep 456. Webster J’s judgment raises the crucial issue as to whether estoppel, or some subspecies of it, can be used to found, or simply to assist, a cause of action. At 1987 LMCLQ 260, FMB Reynolds writes: ‘On English views of estoppel at least, the decision goes to the verge of the law’. See also The Uhenbels [1986] 2 Lloyd’s Rep 294. 68 As happened in The President of India v Metcalfe Shipping Co Ltd [1970] 1 QB 289. 64 65 66 67

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(a)  Charterer Selling CIF Charterer Entitled to Demand Unqualified Statements Where Charterparty Incorporates Hague-Visby Rules If the charterparty incorporates COGSA  1971, or the Hague or Hague-Visby Rules69, or article III of those Rules70, or (arguably) article V  of those Rules71, then, in terms of article III of the Rules, the shipper, that is to say, in this case, the charterer, is entitled to demand a bill of lading containing unqualified statements as to the quantity of goods shipped. Whether such a charterer/shipper/seller does so demand will, of course, depend in practice on how inclined they are to delay the issue of the bill of lading they need to obtain payment, as we have seen.

8.25

Position Uncertain Where Charterparty Does not Incorporate Hague-Visby Rules The position is not quite so clear where the charterer has not thought to incorporate the Rules, wholly or partly, into the charterparty. The crux of the matter is whether the charterer can, as shipper, use the relevant part of a statute, COGSA  1971, in order to obtain the same type of strong receipt which they might have stipulated for by contract. The part of the statute which the charterer might wish to use is a segment of article V in the Schedule to the Act, which reads: ‘if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of these Rules.’ The point would be that, once the Act has the force of law72, then article V imposes an obligation on the shipowner to issue bills of lading, on demand of the shipper, which comply with article III.3, that is to say, which give firm representations as to the quantity of the goods on shipment. Views on the validity of this argument in the two main works in the area differ. The editors of Scrutton73 find it difficult to extend the benefit of article III.3 of the Rules, through article V, to a shipper-charterer who has not incorporated the Rules, totally or partially, into their charterparty. In the hands of the charterer, the bill of lading is a mere receipt74; it is not a contract of carriage as defined by

69 The Visby amendments to the original Hague Rules did not alter art III.3. 70 The article which gives the shipper the right to demand firm representations on the bill of lading: see Appendix 1. 71 The relevant part of art V reads: ‘… if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of these Rules’. 72 See section 1(2) of COGSA 1971. 73 At pp 372 & B14. 74 Rodocanachi, Sons & Co v Milburn Bros (1886) 20 QBD 67 and see para 8.8 above.

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article I(b) of the Rules75; and article V cannot consequently apply in such a way as to trigger off article III.3 in the charterer’s favour. Carver on Bills of Lading76, on the other hand, takes the simpler view, based on the bland text of the legislation: section 1(2) of the Act gives the Rules the force of law; articles V and III form part of those Rules; article V clearly activates article III.3 ‘if bills of lading are issued in the case of a ship under a charter party’; and therefore a shipper-charterer can demand compliance with article III.3. We suggest that the reasoning supporting the view adopted in Carver on Bills of Lading is compelling, both because it flows neatly from the wording of the Act; and because it is more consistent with the policy behind the relevant article of the Rules, namely article III.3, which was to enhance the commercial value of bills of lading by strengthening their function as receipts for goods shipped77.

(b)  Charterer Buying FOB 8.27

Here the question, though in essence the same, is asked on the basis of a different set of facts: where the sale is concluded on FOB rather than CIF terms, and the bill of lading is issued by the shipowner to the seller who then transfers it to the charterer78, can the buyer, as charterer, contact the shipowner and demand the issue to the shipper of a bill of lading containing a firm, unqualified statement as to the quantity and apparent condition of the goods on shipment? We conclude that, in these circumstances, the bill must comply with the terms of the Rules, ie article III.3, because the shipowner has issued a bill of lading where the ship is under charter.

8.28

Having examined whether a charterer shipping goods under a CIF sale is entitled to firm representations in the bill as to the quantity and condition of the goods on shipment, it would be helpful to consider why such a charterer should be at all interested in the strength of statements on the bill. The example with which the question was introduced will serve to illustrate the significance of the issue. Where the carrier’s statement on the bill that 100 tons of sugar were shipped is qualified by a ‘weight and quantity unknown’ clause, the buyer might, against a 75 ‘“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 charter party 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.’ 76 At paras 9.31–9.32. 77 The arguments are rehearsed at greater length in Debattista ‘The Bill of Lading as a Receipt – Missing Oil in Unknown Quantities’ 1986  LMCLQ  468, particularly at pp 476–8; the central thrust of the position there taken is that a bill in the hands of a shipper-charterer must comply, as a matter of form, with article III.3; it is not to impose the whole structure of the Rules, as a contractual regime, on a bill of lading which, in the circumstances envisaged, is not a contract. 78 As happened in The President of India v Metcalfe Shipping Co Ltd [1970] 1 QB 289. Where the bill of lading is issued by the shipowner directly to the buyer-charterer, in exchange for the mate’s receipt which the buyer has obtained from the seller, the buyer-charterer is the contractual shipper of the goods and it is suggested that they then have the same rights, if any, which a seller-charterer under a CIF contract has under article III.3 of the Rules.

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8.30

falling market, be minded to reject the bill. On one view of the authorities, they may well be entitled so to reject79; moreover, on any view, the buyer would be entitled to reject if the sale contract expressly stipulates for tender of a bill of lading not containing such a clause. Normally, a seller could avoid the risk of rejection by exercising the right given them by the 1971 Act to ask the carrier to delete the offending clause on issue of the bill: should the seller be deprived of this right, and risk rejection by the buyer, simply because they happen to have chartered the vessel carrying the goods?

BUYER’S RIGHTS WHERE A BILL OF LADING IS ISSUED UNDER A CHARTERPARTY The Buyer may Have a Right to Reject the Bill of Lading In a cargo claim brought by either trader (seller or buyer) against the carrier, issues may arise regarding the identity of (1) the carrier, and (2) the contractual terms under which the claim is brought; and again, whichever of the two parties sues the carrier, the evidential nature of the bill of lading as a receipt is, as we have seen, of crucial significance to the success of the claim.

8.29

Which of the two traders, seller or buyer, ends up bringing the cargo claim against the carrier in respect of goods carried on a vessel under charter depends upon whether the bill of lading and other documents are accepted or rejected by the buyer. If the buyer rejects, then the seller brings the claim against the carrier and faces some or all of the difficulties discussed in the earlier parts of this chapter; if the buyer accepts the documents, then the party facing those problems is the buyer. So what is the buyer to do: should they accept or reject bills of lading issued pursuant to a charterparty? This is the central point of this final part of the chapter: this includes the requirements of tender, both under a sale on shipment terms80 and under a letter of credit, where a bill of lading is issued under a charterparty.

The Buyer may Have a Right to Reject the Bill of Lading Under the Sale Contract Three issues are involved where the sale contract envisages tender of the documents directly by the seller to the buyer and each will be dealt with in turn: 79 See the discussion of The Galatia [1979] 2 Lloyd’s Rep 450 and of its relationship to Libeau Wood Company v H Smith & Sons (1930) 37 Ll L Rep 296, at paras 6.23–6.26 above. 80 In this context, this phrase includes CIF and C&F contracts; and FOB contracts where the seller fixes the charter and takes the bill either on behalf of the buyer (FOB classic form) or in their own name, then passing both to the buyer (FOB with additional services). In FOB contracts of the straight variety, the buyer will have negotiated the charterparty and will be fully aware of its contents; even if the bill of lading consequently comes to them via the seller, the buyer has no cause for complaint about the bill having been issued subject to a charterparty.

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8.31

Tender of Bills of Lading Under Charterparties

(1)

whether the buyer can reject a bill of lading simply on the basis that it seeks to incorporate terms from a charterparty;

(2)

whether, if the buyer is not entitled to reject simply on that ground, they can demand sight of the charterparty to examine whether the contract of carriage tendered81 conforms to the stipulations agreed in the contract of sale (for example, so far as concerns the destination of the goods); and

(3)

whether the buyer can reject documents where, to the buyer’s knowledge, the contract of carriage tendered does not, as a result of an incorporated term, conform to the contract of sale (irrespective of whether they have had sight of the charterparty).

The Buyer Cannot Reject Simply Because Charterparty Terms Have Been Incorporated 8.31

So far as concerns the sale contract, there appears to be no authority justifying rejection of documents simply on the ground that the bill of lading tendered seeks to incorporate terms from charterparties into bills of lading. Moreover, where the contract contains a term making the seller responsible towards the buyer for the consequences of incorporation82, such a clause is likely to be construed as clear evidence that the parties did not intend tender of a bill of lading incorporating charterparty clauses to provide the buyer with the option of rejection.

It is Unclear Whether the Buyer is Entitled to See a Copy of the Charterparty 8.32

Given that a buyer appears not to be entitled to reject the bill of lading on the mere ground that it seeks to incorporate charterparty terms, one might be forgiven for assuming that they will, instead, have the right to insist with the seller, on pain of rejection, that the charterparty83, or a copy thereof, be tendered with the bill of lading, so as to ascertain whether the resulting contract of carriage complies with the contract of sale. However, the case law on this point is unclear. On the one hand, Viscount Caldecote L C J decided against the requirement of tender of the charterparty in Finska Cellulosaforeningen v Westfield Paper Co Ltd84, where he held that buyers were not entitled to reject shipping documents on the ground that the charterparty was not tendered with the bill of lading85. 81 That is to say, the contract composed of the terms in the bill of lading itself and those effectively incorporated from the charterparty. 82 See FOSFA 54 (revised 2008), lines 97–98: ‘If the Bill/s of Lading refer/s to a Charter Party … Sellers shall be responsible for any detrimental consequences from clauses of such documents being contrary to the terms of this contract’. 83 As for which charterparty where there is a string of subcharters, see para 8.16, fns 37–9 above. 84 [1940] 4 All ER Rep 473, see particularly pp 474–6. 85 Caldecote LCJ’s judgment was distinguished by Donaldson J in SIAT di dal Ferro v Tradax Overseas SA [1978] 2 Lloyd’s Rep 470 at 492, affirmed at [1980] 1 Lloyd’s Rep 53 and discussed at para 7.31 above, on the ground that, in the Finska case, there was a course of dealing between the parties to

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8.32

On the other hand, there are a number of early cases which seem to indicate that it was quite common to tender the charterparty where there was one86. Moreover, more recently, there have been some hesitant expressions of unease with the notion that the buyer might be bound to accept from the seller a contract of carriage, sight unseen, which binds them to the carrier. Thus, in SIAT di dal Ferro v Tradax Overseas SA87, both Donaldson J at first instance and Megaw LJ in the Court of Appeal lament, albeit somewhat obliquely, the absence of the charterparty on tender of a bill of lading giving the phrase ‘As Per Charter Party’ as the destination of the goods. In deciding that the buyers were entitled to reject the bills because the destination they incorporated into the bill of lading did not, in fact, tally with the destination in the sale contract88, Donaldson J said that the bills of lading were also defective: ‘in that, in the absence of an accompanying copy of the charter-party, they did not show whether the other terms of the contract of carriage were consistent with the sale contract.’ Both Donaldson J and the Court of Appeal were loath, however, to base their decision on the simple ground that no charterparty was tendered: the Court of Appeal, through Megaw LJ, expressly eschewed giving any view on the matter89; and Donaldson J goes, if anything, slightly further in the opposite direction, that is to say that the seller is under no obligation, ordinarily at any rate, to tender the charterparty90: ‘The mere fact that a bill of lading refers to a charter-party does not require the production of that charter, if its terms are not incorporated into the bill of lading contract or do not affect the buyers’ rights.’ How then is the buyer to know what is incorporated, and whether what is incorporated affects their rights, if they are not entitled, in the first instance, to demand sight of the charterparty? Buyers keen to avoid this difficulty would be well advised to draft into their contracts an express right to sight of the charterparty91.

86

87 88 89 90 91

the sale contract which put the buyers on notice as to the terms of the charterparty incorporated into the bill of lading. To distinguish the Finska case on this ground is, with respect, to explain rather than to justify it: for a charterparty contains much more than the standard form on which it is built, and to impute knowledge of a particular fixture on the basis of a standard form does violence, surely, to the general principles of notice of contractual terms. See, for example, Covas v Bingham (1853) 2  E  & B  836 and other cases cited in Benjamin, para 19–042, footnote 325. Moreover, the charterparty is listed as one of the documents to be tendered in Ireland v Livingston (1872) LR 5 HL 395, 406: this was, however, only said by way of obiter. See, particularly, [1980] 1 Lloyd’s Rep 53 at 63, per Megaw LJ; and [1978] 2 Lloyd’s Rep 470 at 492, per Donaldson J. See also Soules CAF v PT Transap of Indonesia [1999] 1 Lloyd’s Rep 917. As to this aspect of the case, which formed the ratio on this point, see para 8.34 below. See [1980] 2 Lloyd’s Rep 53 at 63. [1978] 2 Lloyd’s Rep 470 at 492. The position is the same where Incoterms 2020 are incorporated; these terms do not impose on the seller a duty to tender a copy of the charterparty, cf Incoterms 1990, CIF, A8. See FOSFA 54 (revised 2008), line 144: ‘If the Bill/s of Lading refer/s to a Charter Party, then, if required by Buyers, Sellers shall provide a copy of the Charter Party’. The seller’s duty to tender a

225

8.33

Tender of Bills of Lading Under Charterparties

The Buyer is Entitled to Reject a Bill of Lading Incorporating a Charterparty Term Which Does not Comply With the Contract of Sale 8.33

If the buyer has (for whatever reason) had sight of the charterparty, and a charterparty term does not comply with the sale contract, the buyer is entitled to reject the bill of lading. This is clear from the SIAT di dal Ferro92 case, which held that the buyer was entitled to reject in such circumstances and, conversely, that they were not entitled to reject where the contract of carriage composed through incorporation did comply with the sale contract. In that case, as earlier discussed93, the buyers were entitled to reject, inter alia, a group of bills of lading showing the port of discharge ‘As Per Charter Party’, where the destination under the resulting contract of carriage94, providing for discharge at ‘one of (sic) two safe berths Venice and Ravenna’, did not comply with the contract of sale, which provided for discharge in Venice95. Accordingly, where charterparty terms are incorporated into bills of lading, the process of incorporation turns such terms into bill of lading terms and these terms therefore come within the basic rule that the seller must procure for the benefit of the buyer contractual terms of carriage which conform to the contract of sale or which, failing express stipulation, are reasonable within the terms of SOGA 1979 s 32(2). In practice, this reasoning provides the buyer, however, with only half an answer; and the other half could work very much against them. We are assuming here that the buyer has, through some means or other, actual knowledge of the terms of the charterparty, as they would, for example, if the seller disclosed a copy of the charterparty. However, the buyer has no automatic right to sight of the charterparty and, if the incorporated clause turned out, on subsequent examination, to be innocuous96, the buyer would find themselves liable towards the seller for wrongful rejection97. Blandly to advise, therefore, that the buyer is entitled to reject non-conforming documents which they have no right to see will, in most cases, be only of theoretical benefit. From the buyer’s viewpoint,

92 93 94 95

96 97

copy of the charterparty may well put it in breach of any express duty in the charterparty to keep the existence and terms of that contract private and confidential. However, there appears to be no recorded case before the English courts in which an owner has pursued a charterer in litigation for breach of such a term. [1978] 2 Lloyd’s Rep 470, affirmed by the Court of Appeal at [1980] 1 Lloyd’s Rep 53. See para 7.31 above. That is to say, after incorporation. See also Marshall Knott & Barker Ltd v Arcos, Ltd (1932) 44 Ll L Rep 384; cf In the matter of an Arbitration between Goodbody and Co and Balfour, Williamson and Co 4 Com Cas 119 where the sale contract contained a safe port warranty, thus ensuring that no discrepancy arose when a bill of lading was tendered which likewise provided for discharge at a safe port. If, for example, on the facts of the SIAT di dal Ferro case itself, the charterparty destination was simply ‘Venice’. The actual buyer in the SIAT di dal Ferro case, even on the hypothesis here envisaged, would not have been so liable, because there were other grounds entitling them to repudiate the contract: see para 7.31 above.

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8.35

therefore, only a term in the sale contract expressly giving them the right to sight of the charterparty would afford them the information required in order to assess whether the contract of carriage procured for them conforms with the sale contract.

Issues That Arise in Bills of Lading Incorporating Charterparty Terms Where There is a Letter of Credit Under the old UCP  400, art  26(c)(i) prohibited tender of a bill of lading indicating that it was ‘subject to a charterparty’, subject to contrary instruction in the letter of credit. Given the common use of bills of lading incorporating charterparty terms and given that standard letter of credit forms fail to ask for instructions on the matter, there was a danger of unexpected rejection by banks. The frequent use of bills of lading referring to charterparties, particularly in the commodity trades, persuaded the International Chamber of Commerce to alter the rules by introducing an article into the UCP 500, art 25, specifically dealing with charterparty bills of lading, which now appears as UCP  600 art  2298. The article99 raises the interesting issue as to whether the letter of credit should, in order to avoid unnecessary rejections by document checkers, expressly say ‘charterparty bills allowed’ or whether it is safe for the credit to remain silent as to whether charterparty bills can be tendered. It is to this issue that we now turn.

8.34

Should the Letter of Credit Expressly Allow the Tender of Charterparty Bills of Lading? In order to answer the question whether a letter of credit should expressly say ‘charterparty bills allowed’, one needs to come to a clear definition of what the phrase ‘charterparty bill of lading’ encompasses. Unfortunately, this question has not been tested judicially, but we offer our thoughts on an appropriate analysis below.

98 The UCP 500 art 25 has been altered in the UCP 600 art 22 in two respects. First, article 22 now envisages a charterparty bill being signed not only by the master, the owner or agents of either (as did the UCP 500 art 25) but also by the charterer or their agent. This allows through a letter of credit a bill of lading signed by the charterer, a not unlikely possibility where the charterer is taking goods on board from other shippers. Care should be taken, however, where a charterer-seller CIF fills an entire ship with their own cargo: the new article 22 appears to expose the buyer to the risk that a fraudulent charterer-seller CIF might issue and sign bills of lading for unshipped goods and tender them for payment to an unsuspecting document checker. A buyer keen to avoid such risk may wish to exclude the relevant part of article 22(a)(i). Secondly, the new article 22(a)(iii) now envisages a credit – and a charterparty bill – showing a range of discharge ports as the port of discharge. 99 For a fuller discussion, see Debattista ‘The New UCP 600 – Changes to the Tender of the Seller’s Shipping Documents under Letters of Credit’ [2007] JBL 329 at pp 349–51.

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8.35

8.36

Tender of Bills of Lading Under Charterparties

There is no Definition of a ‘Charterparty Bill of Lading’ Under the UCP 600 8.36

Whereas the old UCP 500 article 25 made no attempt at defining a charterparty bill of lading, there is now some attempt at a definition: the new article 22 defines a charterparty bill as one, ‘however named, containing an indication that it is subject to a charterparty’. The difficulty with this ‘definition’ is that the phrase could include two quite different types of document: (a)

It would clearly include a bill of lading covering the shipment of a commodity on a chartered vessel where the bill of lading is, say, a Genconbill marked as being intended for use with charterparties.

(b) Would it, however, include an ordinary full form bill of lading which contains somewhere on the front page of the bill a reference to a charterparty, eg ‘freight as per charterparty’. Would this be a ‘charterparty bill of lading’ allowed in by the new article 22 or a ‘bill of lading’ excluded by the new article 20(a)(vi)100? The phrases ‘charterparty bill of lading’ and ‘an indication that it is subject to a charterparty’ are normally taken to refer, at any rate in the shipping market, to a type (a) bill of lading but not to a type (b) bill of lading. If this interpretation were (sensibly) adopted in interpreting UCP 600 arts 20–22, a document checker faced with a type (a) bill of lading – a charterparty bill of lading, in our view, properly so-called – would look to article 22, headed ‘Charterparty Bill of Lading’, whether or not the credit expressly allowed or required tender of such a bill, and would accept it. If, on the other hand, a document checker were faced with a type (b) bill of lading – ie a bill of lading simply referring to a charterparty – they would go straight (and exclusively) to article 20. This article would tell them, at article 20(a)(v), that such a bill is acceptable: that sub-article expressly allows the tender of bills of lading ‘making reference to another source containing the terms and conditions of carriage’ and the charterparty to which the bill refers is another such source. On this interpretation, sub-article 20(a)(vi)101 would not operate to reject a type (b) bill because that sub-article would only exclude from article 20 a type (a) bill – which would, however, be acceptable under article 22. The solutions suggested above have not, as yet, been tested judicially. In the meantime, sellers and buyers need to know whether, if unnecessary rejections are to be avoided, the credit should expressly say ‘charterparty bills allowed’ or whether is it safe for the credit to give no indication as to whether charterparty bills can be tendered. 100 UCP  600 art  20(a)(vi) reads: ‘A  bill of lading, however named, must appear to … contain no indication that it is subject to a charterparty’. 101 Excluding the tender of a bill of lading containing an indication that it is subject to a charterparty.

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8.37

The position, we suggest, is as follows: (a)

First, if the letter of credit expressly prohibits charterparty bills, then a document checker must reject a type (a) bill of lading, because the letter of credit instructs them to do so. It may be that the document checker will also reject a type (b) bill on the (we would suggest, wrong) basis that the phrase ‘charterparty bill of lading’ includes a bill of lading which simply refers to a charterparty.

(b) Secondly, if the letter of credit expressly requires charterparty bills, then a document checker must require a type (a) bill of lading, again simply because the letter of credit tells them to do so. It is also likely that the document checker will – and should – accept a type (b) bill. (c)

Thirdly, if the letter of credit simply asks for a bill of lading without saying anything about charterparty bills, then a document checker is likely to reject a type (b) bill of lading, on the (we would say, misconceived) basis that article 20(a)(vi) excludes a bill of lading simply referring to a charterparty. The document checker may even reject a type (a) bill of lading: they may take the (again, wrong) view that, as the credit calls simply for a bill of lading, then article 20 governs and excludes tender – and then fail to travel the distance to article 22 to find that the charterparty bill can be tendered under that article.

Given these options, we suggest that it remains prudent for sellers wishing to ensure that they can successfully tender charterparty bills of lading (whether of type (a) or (b)) to continue to stipulate in their sale contract for the opening of a letter of credit stating ‘charterparty bills allowed’ and should make sure when they receive the letter credit that the credit so allows.

There is no Requirement That the Charterparty Must be Tendered UCP 600 art 22(b) provides that: ‘A bank will not examine charter party contracts, even if they are required to be presented by the terms of the credit’. It is clearly justifiable that banks should not be required to examine the terms of a charterparty to which a bill of lading makes reference. However, it is unfortunate that the opportunity was let pass to require the tender of a copy of the charterparty with any bill of lading which refers to it. The buyer has – and the bank might have – a clear interest in examining the terms of the charterparty. The terms of the contract of carriage on which either may sue the carrier in a cargo claim will be contained in the bill of lading and in the charterparty clauses incorporated therein. Those terms may well fail to conform with the terms of the sale contract and the buyer may wish to reserve their rights against the seller when accepting the documents tendered through the banks under the letter of credit102. The bank too may have an interest in having sight of the charterparty, without necessarily being required, 102 As they did in SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53.

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8.37

8.37

Tender of Bills of Lading Under Charterparties

vis-à-vis the buyer, to examine its terms. Charterparty terms incorporated into the bill of lading, eg demurrage terms, may well be material to the unpaid bank’s decision as to whether to claim possession of the goods, a claim which would make it liable to carriage claims by the carrier103. To have imposed a duty on the seller to tender a copy of the charterparty under the credit would not mean that the banks would have been under a duty to inspect the charterparty: it would simply have given them – and the buyer – the facility to inspect terms which may well affect them. There is nothing in the UCP 600, of course, to prevent a letter of credit expressly requiring the tender of a charterparty from which terms are incorporated into a bill of lading. The buyer is free to so require it in their letter of credit.

103 Through the operation of COGSA 1992 s 3.

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Chapter 9

Rejecting Documents and Goods

SELLER’S PHYSICAL AND DOCUMENTARY DUTIES AS TO THE TIME OF SHIPMENT: CONDITIONS OF THE CONTRACT 9.5 DOCUMENTARY DUTIES IN GENERAL AND TERMINATION FOR BREACH 9.10 (a) Are Documentary Duties Conditions, Warranties or Innominate Terms?9.10 (b) There is no Clear Authority Deciding Whether There is a de Minimis Threshold That Must be Met to Entitle a Buyer to Terminate for Documentary Breaches 9.12 (c) The Seller Should Have no Right to Cure a Documentary Defect 9.18 BUYER’S REMEDY OF TERMINATION: PRACTICAL CONSTRAINTS9.19 BUYER’S REMEDIES OF REJECTION: DOCUMENTS AND GOODS9.25 (a) The Buyer’s Separate Rights of Rejection are Also ‘Independent’: Kwei Tek Chao9.27 (b) Damages for Loss of the Opportunity to Reject Documents 9.31 – Questions Raised by This Right of Recovery 9.31 – The Type of Loss Which can be Recovered 9.32 – Can the Buyer Recover Losses Caused by Market Fluctuations?9.33 – Can the Buyer Recover Where There is a Defect in the Documents Alone, Causing no Loss? 9.34 (c) Loss Through Estoppel of the Right to Terminate 9.35 – Panchaud Freres9.36 – Summary of the Effects of Panchaud Freres9.42 – Is the Buyer Estopped Through Actions of a Bank? 9.43

Repudiatory Breach in the General Law of Contract In the general law, the effect of repudiation of a contract on account of its breach is relatively clear: where one party to a contract is in breach of a condition, or of an innominate term the effects of the breach of which go to the root of the contract, the innocent party has the option of terminating the contract. The effect of such termination is that both parties are no longer bound by the primary duties 231

9.1

9.2

Rejecting Documents and Goods

in the contract1; both parties remain bound, however, by secondary duties in the contract, namely duties imposed by terms regulating the remedies of the parties after breach2. The clarity of the present state of the general law of contract3 is due in large part to the judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd4 and to the speeches of Lords Wilberforce and Diplock in Photo Production Ltd v Securicor Transport Ltd5: these decisions threw light on what had previously been clouded by too rigid an adherence to the distinction between conditions and warranties6, and by the confusion, inherent in the discredited doctrine of fundamental breach, between repudiation and rescission of a contract7.

Rejection in Shipment Sales 9.2

Given the relative ease with which the remedy of termination for breach can be stated, it may seem strange that this particular remedy in the buyer’s armoury – termination of the contract of sale through rejection – should merit an entire chapter to itself; just as strange, moreover, that it alone, of all the remedies available to sellers and buyers whose contracts of sale are governed by English law8, deserves attention here.

1 2

Such as the duty to ship the goods, or the duty to pay the price. Such as an arbitration clause, or a liquidated damages clause: see Heyman v Darwins [1942] AC 356, particularly per Lord Macmillan at p 373. 3 There are doubts as to whether the doctrine of fundamental breach survives in the case of deviation/quasi-deviation the law of carriage of goods by sea: see C Debattista, ‘Fundamental Breach and Deviation in the Carriage of Goods by Sea’ [1989] JBL 22. Specifically, as regards deviations, the law is clear that a deviation still entitles the innocent party to terminate, no matter how minor the breach: Dera Commercial Estate v Derya Inc (The Sur) [2018] EWHC 1673 (Comm). 4 [1961] 2 Lloyd’s Rep 478, at 491–5. 5 [1980] AC 827. 6 Diplock LJ’s contribution to the law on repudiatory breach has not, for all its clarity, commanded unanimous support: see, for an entertaining critique of the Hongkong doctrine, T Weir ‘Contract – The Buyer’s Right to Reject Defective Goods’ [1976] CLJ 33. There is no doubt, however, but that the Hongkong doctrine represents the law as accepted in the highest quarters: see Bunge Corporation v Tradax Export SA [1981] 2 Lloyd’s Rep 1. 7 Repudiation terminates, while rescission annuls, a contract. It is clear that no contractual term can ‘survive’ rescission, quite simply because rescission implies that no contract ever existed: consequently, there are no terms to survive. With repudiation, on the other hand, it is conceivable that terms devised by the parties to regulate the resolution of disputes might survive breaches giving rise to disputes. The conflation between these separate concepts – repudiation and rescission – formed the basis of the now discredited doctrine of fundamental breach, by virtue of which a party in serious breach of contract was deprived of the protection of contractual exclusion clauses: see Photo Production v Securicor Transport [1980] AC 827 per Lord Wilberforce at 844; and Johnson v Agnew [1980] AC 367 per Lord Wilberforce at 392–3. 8 See SOGA 1979 Parts V and VI for Rights of Unpaid Seller against the Goods and for Actions for Breach of the Contract, respectively.

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Rejecting Documents and Goods

9.4

Termination by the buyer of a sale contract on shipment terms on the grounds of the seller’s repudiatory breach is complex and special enough to require detailed and exclusive treatment in a book which has as one of its central themes the dual mode of performance (physical and documentary) by the seller of their contractual obligations. The remedy of termination is more complex here than in the general law of contract because of both legal and practical reasons.

Legal and Commercial Features of Termination in Shipment Sales There are special legal features about the workings of termination in the context of shipment sales. A binary line runs down every international sale contract on shipment terms: the seller’s duties towards the buyer come in two shapes: (1) the physical; and (2) the documentary. It is not surprising, consequently, that termination – the most radical of contractual remedies – should need to be analysed in binary terms as well.

9.3

Here lies the complexity: what exactly does ‘termination’ mean in the context of a contract which is performed in two modes, a physical mode and a documentary mode? If the seller performs in two modes, how might the buyer terminate, in response to one or other of the modes of performance or through one act of termination to both modes of performance? In domestic sales, where the seller makes but one delivery, it is easy for the law to reflect and regulate the buyer’s singular act of rejection. In shipment sales, though, how, what and when is the buyer to reject if they wish to exercise their option to terminate the contract for repudiatory breach? From a commercial point of view, to judge at any rate by the reported cases, the option of termination of shipment contracts for the sale of commodities represented by shipping documents is valuable in markets where a sudden drop in the price of the commodity can make a major difference to the value of the contract to the buyer9. Prompt action on the documents can help extricate the buyer from a contract which has turned out to be less advantageous than it once appeared to be. Equally, it is important for a seller wishing to keep their buyer to a contract against a falling market to restrict as much as possible the buyer’s option to terminate for breach. The law needs to reflect these conflicting commercial interests by regulating the manner in which, and the time at which, the buyer can exercise the option of termination and, for these reasons, we concentrate here on the buyer’s option of termination, reference being made to the major works in the area10 for those other remedies which international sales share with their domestic counterparts.

9.4

See the drop of USD 2.5 million in the value of the cargo of gasoline in four days in ERG Raffinerie Mediterranee SPA v Chevron USA Inc (The Luxmar) [2006] 2 Lloyd’s Rep 543. 10 See Benjamin, paras 19–147 to 19–191 for the general principles concerning CIF sales, and paras 20–112 to 20–120 in relation to FOB sales. 9

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9.5

Rejecting Documents and Goods

SELLER’S PHYSICAL AND DOCUMENTARY DUTIES AS TO THE TIME OF SHIPMENT: CONDITIONS OF THE CONTRACT Time of Shipment of the Essence: a Buyer can Terminate if the Goods Were not Shipped on Time: Bowes v Shand 9.5

The time of actual shipment agreed in the sale contract is a condition of the contract, breach of which condition allows termination of the contract by the buyer: Bowes v Shand11, where a buyer was held entitled to reject a cargo the bulk of which had been shipped in February in breach of a contract stipulating for shipment in March and/or April. This is because the date of shipment goes to the essence of CIF and FOB contracts as shipment rather than destination contracts12: given that the seller promises shipment, rather than arrival, of the goods, the buyer is entitled to expect that the seller should perform their obligation as to shipment within the time allowed for in the contract. The seller’s duty physically to ship the cargo within the contract period is reflected in their documentary duty to tender a bill of lading accurately stating shipment within the same period13. As has already been indicated, the buyer’s option to terminate in shipment sales has been developed in cases dealing with the rejection of documents inaccurately stating the date of shipment. An understanding of the workings of termination in this area must therefore start with an explanation of the seller’s duty14 to tender a bill of lading accurately stating that the cargo has been shipped within the contract period.

The Seller’s Duty to Tender an Accurately Dated Bill of Lading 9.6

Bills of lading invariably state a date of shipment, although it is, rather confusingly, described as the date of issue15; and sale contracts commonly contain an express term stipulating the seller’s obligation to tender a dated bill of lading16. 11 (1877) 2 App Cas 455. See Benjamin, para 18–332. 12 See para 1.2 above. 13 Procter & Gamble Philippine Manufacturing Corporation v Kurt A  Becher GmbH & Co KG  [1988] 2 Lloyd’s Rep 21 and earlier cases therein cited. 14 At any rate in those sale contracts where the seller is responsible for organising the issue of the bill of lading, that is to say, in CIF, C&F, FOB extended and FOB classic contracts. 15 This is curious, given the importance attached to the date of shipment and given that the date of issue rarely, if ever, coincides with the date of shipment. Nonetheless, it seems always to be assumed that the date given as the date of issue on the face of a bill is the date on which the goods were actually shipped, saving, of course, the case where the bill starts off as a ‘received for shipment’ bill and eventually becomes a ‘shipped’ bill by express annotation of the date of actual shipment: see COGSA 1971 Sch art III.7. The assumption that the date of issue is the date of shipment is also made in UCP 600 art 20(a)(ii). 16 See, for example, Incoterms 2020  CIF A6: the document tendered must ‘be dated within the period agreed for shipment’.

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The seller is, furthermore, under an implied obligation to tender a bill of lading stating shipment within the contract period accurately.17 A failure to do so is relevant in three sets of circumstances: (1)

where the seller ships the goods within the contract period, but tenders a bill of lading inaccurately stating them to have been shipped out of time;

(2)

the reverse case, that is to say, where the seller ships out of time, but tenders a bill of lading inaccurately stating shipment to have taken place within the contract period; and

(3)

where, whether or not the seller has shipped within the contract period, the seller tenders a bill of lading giving a shipment date which, though within the shipment period, is nonetheless inaccurate.

Shipment in Time, but Bill of Lading Inaccurately States Shipment out of Time First, the seller is under a duty to provide a bill of lading stating that the goods were shipped within the contract period. For example, the seller has performed their duty physically to ship the goods within the contract period; but, by tendering a bill of lading which inaccurately states shipment outside that period, the seller has failed to tender a document which correctly describes the goods being sold; consequently, they have failed to give the buyer a bill of lading which the buyer could easily sell on the market. The seller is therefore in breach of their documentary obligations. This much was held in Re General Trading Co and Van Stolck’s Commissiehandel18. Any other result would have involved the assumption that performance of the seller’s physical obligation to ship within the contract period is a discharge of their independent documentary duty to tender a bill of lading accurately describing the goods. Clearly it is not.

9.7

Shipment out of Time, but Bill of Lading Inaccurately States Shipment in Time Secondly, the seller also owes a separate duty to tender a bill of lading accurately stating shipment within the contract period. For example, the seller has failed to perform their duty physically to ship the goods within the contract period, but has managed to tender a bill of lading dissembling performance of that physical duty19. It is clear on authority that the tender of such a bill of lading constitutes 17 The duty is sometimes made express: thus see clause 6 in GAFTA 100: ‘Period of shipment: as per bill(s) of lading dated or to be dated … The bills of lading to be dated when the goods are actually on board. Date of bill(s) of lading shall be accepted as proof of date of shipment in the absence of evidence to the contrary’. 18 (1910) 16 Com Cas 95, particularly at 101. 19 To tender such a bill, the original shipper must have obtained the co-operation of the carrier, or at any rate of the party physically signing the bill on the carrier’s behalf. Such co-operation might be obtained against an indemnity which the shipper offers the carrier or signatory in return for a bill

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a breach of ‘a distinct and separate promise … to hand a bill of lading which would truly state that the [cargo was shipped within the contract period]’20. In this case, the seller is consequently in breach both of their physical duty to ship goods within the shipment period and of their documentary duty to tender a bill of lading accurately describing the goods. (We shall see later in this chapter21 that the measure of damages compensating the buyer is different for each of these two identified breaches.)

Bill of Lading Stating Shipment in Time, but Giving an Inaccurate Date of Shipment 9.9

Thirdly, the seller is in breach of contract if they tender a bill of lading that inaccurately reflects the date of shipment, even where the stated shipment date is within the sale contract window – for example, if the seller tenders a bill of lading stating a shipment date which, while falling within the shipment period, does not accurately reflect the date when the goods were actually shipped: for example, the seller tenders a bill of lading stating shipment to have occurred on 25 October, whereas the goods were actually loaded on the 26th of that month. Where the contract stipulates for October shipment, that is to say, where the seller is not in breach of their physical duty to ship the goods within the contract period, it is now clear that such a seller is in breach of their documentary duty: Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG22. The consequences of the seller’s breach are a matter to which we shall be returning later in this chapter23; suffice it for the present to say that, after Procter & Gamble24, a buyer establishing such a breach on the part of the seller is unlikely to recover much by way of damages in other than very exceptional circumstances. In all three cases – namely, where the seller is in breach of their documentary but not of their physical duty to ship within the contract period; where the seller attempts to conceal through the bill of lading a breach of their physical duty of timely shipment; and where the seller is simply guilty of a documentary inaccuracy which falls within the shipment period – the seller is in breach of a duty, quite separate from their obligation physically to ship the goods within the contract

20 21 22

23 24

which, stating shipment within the contract period, can easily be tendered to the buyer or to the bank under a letter of credit: see Finlay (James) & Co Ltd v MV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400 at 408; and Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG [1988] 2 Lloyd’s Rep 21 at 22. Finlay (James) & Co Ltd v MV  Kwik Hoo Tong Handel Maatschappij [1929] 1  KB  400 at 413, per Greer LJ. See paras 9.31–9.34 below. [1988] 2 Lloyd’s Rep 21. The obligation in this case was made express in GAFTA 100, clause 6; it is clear from the judgments, though, that the duty to tender an accurate bill of lading – implied in the James Finlay case (fn 20 above) – would apply in this third type of case as well: see [1988] 2 Lloyd’s Rep 21 at 27–9, 33. See paras 9.31–9.34 below. [1988] 2 Lloyd’s Rep 21.

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period, to tender a bill of lading accurately stating shipment to have occurred within that period. The cases establishing and illustrating this documentary duty all arise from facts where the gap between the date of actual shipment and the date stated on the bill of lading was really very short indeed25. This observation leads on to our next question: does any breach of the seller’s documentary duties, however minor, entitle the buyer to terminate the contract?

DOCUMENTARY DUTIES IN GENERAL AND TERMINATION FOR BREACH (a)  Are Documentary Duties Conditions, Warranties or Innominate Terms? Is any Documentary Breach a Condition? An inaccurate statement on the bill as to the date of shipment is only one type of defect on the grounds of which the buyer may feel entitled to terminate the contract for breach: it has been singled out for treatment here because most of the problems giving rise to litigation about the remedy of termination for breach in shipment sales have arisen in the context of this particular type of documentary breach. In Chapters 6 and 7, however, we looked at a series of attributes to which a buyer is entitled in their bill of lading, whether by express stipulation or through implication by the courts. The question here goes one step further: does any documentary breach, however minor in terms of its actual impact on the buyer, entitle the buyer to terminate the contract? Or, to place the question within its general contractual setting, are documentary duties conditions, innominate terms or warranties?

9.10

The Use of Conditions in International Trade An apparently slight drop in the international market value of a commodity shipped in large quantities can make withdrawal from a contract – or even its threat – attractive to a buyer who now finds that they could have purchased the same cargo at a much cheaper price had they entered the market later rather than sooner26. Consequently, from a buyer’s point of view, the greater the number of conditions in their contract, the greater the chance of finding the seller in breach of one or other of them. Moreover, the opportunities for finding technical breaches of contract and for using them as pretexts for termination on purely 25 Thus, in none of the three cases mentioned in our discussion of the seller’s documentary duty was the gap longer than 10 days. 26 Thus see, for example, the alacrity with which the buyer in The Santa Clara [1996] 2 Lloyd’s Rep 225 sought to escape from a contract for the sale of propane oil where the market had dropped by $230 per tonne. See also fn 9 above.

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commercial grounds would be greatly increased if every contractual requirement of every document contained in the bundle tendered by the seller were to enjoy the status of a condition. Accordingly, the classification of contractual promises as conditions, warranties or innominate terms in the general law of contract is relevant both in terms of conceptual analysis and in terms of practical application27. What, then, is that status of the various documentary duties imposed on the seller of goods on shipment terms? The authorities in which the issue has been addressed are few and conflicting. The court stated in The Hansa Nord28 that: ‘the seller’s obligation regarding documentation had long been made sacrosanct by the highest authority and that the express or implied provisions in a CIF contract in those respects were of the class … any breach of which justified rejection.’29 This proposition appears to have entered the law rather sub silentio, with no ‘highest authority’ actually appearing to have been cited in support of it. The obligation allegedly broken by the seller in that case was their physical duty to ship goods ‘in good condition’ rather than their duty to tender documents indicating shipment in good condition. There seems nonetheless to be a marked degree of judicial reluctance directly to challenge the proposition that documentary duties are conditions, even in cases where the courts have sought to restrict the buyer’s right to terminate the contract on the grounds of a documentary breach. The judges have preferred to raise the issue obliquely in slightly different terms, by asking whether the general maxim de minimis non curat lex applies to documentary duties in shipment sales.

(b)  There is no Clear Authority Deciding Whether There is a de Minimis Threshold That Must be Met to Entitle a Buyer to Terminate for Documentary Breaches 9.12

There appears to be no case deciding in terms that the de minimis rule does not apply to the documentary duties in shipment sales; neither, however, does there appear to be any authority for the proposition that it does apply to every such duty. The judges have been saved the difficulty of deciding the question largely because the cases before them have conveniently been easy of resolution through some other means30. Caution in this area is well justified, for the question touches 27 For what is, with respect, an illuminating and thorough account of the issue, see Treitel, at paras 18.043–18.066. 28 [1976] QB 44 per Roskill LJ at 70B. 29 Emphasis added. 30 Thus, for example, in SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53, the court found breaches so serious as not to require a decision as to whether other defects in the documents were saved by the de minimis rule. Again, in Jydsk Andels-Foderstofforretning v Grands Moulins de Paris (1931) 39 Ll L  Rep 223, in applying the de minimis rule to a case where an amount slightly in excess of the contract quantity was tendered, MacKinnon J did not need to specify which of the two breaches, physical or documentary, he was applying it to, and this because the document – a

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two sensitive nerves running through the subject: the precise relationship between the physical and documentary modes of performance in shipment sales; and, in close proximity, the exact link between a shipment sale and a letter of credit. In the absence of clear authority, what are the arguments on either side and which should prevail? Should buyers be entitled to insist on strict compliance or should they be content with documents which do not comply with the requirements of the contract of sale in a minimal way?

Strict Compliance Justified Two arguments have been put forward in favour of strict documentary compliance: (1) certainty of application; and (2) consistency between the law of sale and that relating to letters of credit. The first argument – based on considerations of certainty – is one commonly put forward whenever judges prefer the rigour of conditions to the haze of innominate terms: the all-or-nothing nature of conditions assists business persons and their advisers in coming to decisions upon the accuracy and speed of which turn the disposition of large cargoes at sea and, possibly, enormous sums of money31. Those commercial decisions ought not to be delayed or complicated by criteria depending on a speculative assessment of likely loss. Thus, in Soon Hua Seng Co Ltd v Glencore Grain Ltd Mance J said32: ‘It is of the nature of documentary requirements that they should be strictly complied with. This is so whether or not a third party such as a bank is involved in the transaction. A buyer presented with shipping documents must make a judgment on the documents whether or not they are acceptable. He does not, at least normally, have the goods available for inspection at that stage. He cannot evaluate how significant any documentary discrepancy will or may prove. He is entitled to know where he stands. All these factors point to a strict view of compliance with documentary requirements such as the present.’ The reference by Mance J to situations where banks are involved in the tender and acceptance of documents leads to the second argument in favour of strict compliance, namely consistency between the rules regulating documentary tender in international sales and in letters of credit. Just as a ‘complying presentation’ under letters of credit governed by the UCP 600 means ‘a presentation that is in accordance with the terms and conditions of the credit …’33, so too documents

weight certificate – arrived as the goods were being discharged: consequently, both goods and documents were rejected by the buyer at the same time. 31 See, for example, Megaw LJ in SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53 at 62 and Lord Roskill in Bunge Corporation v Tradax Export SA [1981] 2 Lloyd’s Rep 1 at 12. 32 [1996] 1 Lloyd’s Rep 398 at 402. 33 See arts 2, 14(a) and 15(a).

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tendered to the buyer directly for payment need to comply with any documentary requirements stipulated for in the contract of sale34.

Strict Compliance not Justified 9.14

On the other side of the debate, three arguments can be put forward against requiring strict compliance by the seller with their documentary duties under the contract of sale; and three authorities can be cited as lending some support to this view. The arguments are based respectively on: (1) the avoidance of sharp practice; (2) the desirability of consistency between the physical and documentary duties imposed upon the seller; and (3) SOGA 1979 s 15A. The authorities are three first instance judgments, by MacKinnon J in Jydsk Andels-Foderstofforretning v Grands Moulins de Paris35; by McNair J in Moralice (London) Ltd v ED & F Man36; and by Slynn J in Tradax Internacional SA v Goldschmidt SA37.

Arguments Against Strict Compliance 9.15

The first argument, that against sharp practice, runs as follows. If all documentary duties were categorised as conditions with which the seller was bound to comply strictly, then the buyer would be able to extract themselves from a contract against a falling market with more law than merit on their side. On the other hand, if the seller’s documentary duties were to be tempered by a de minimis threshold, a judge would have some room for discriminating between documentary breaches which should allow termination and breaches which would otherwise enable the buyer to harass the seller into agreeing a cheaper price. The second argument, regarding consistency between physical and documentary duties, is closely linked to the first. Judges already retain a window of discretion through which to apply the de minimis rule where a seller is in breach of a condition imposing a duty as to the physical delivery of the goods. Thus, even in Arcos Ltd v EA Ronaasen and Son38, a case where rejection of a cargo of timber was upheld by the House of Lords on the basis of breaches which were measured in fractions of an inch, Lord Atkin suggested that: ‘[n]o doubt there may be microscopic

34 See SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53 at 62. For a contrary view, see R M Goode ‘Twentieth Century Developments in Commercial Law’ (1983) 3 LS 283 at 285. 35 (1931) 39 Ll L Rep 223. 36 [1955] 2 Lloyd’s Rep 526. 37 [1977] 2 Lloyd’s Rep 604. 38 [1933] AC 470. The readiness with which the House of Lords in this case treated a term that timber should be of a given dimension as a condition, and its breach by a marginal amount repudiatory, has been called suspect after more recent case law: see P S Atiyah The Sale of Goods (7th edn), pp 98 and 52–7. The point of the case in the text above, though, remains intact, namely that even here, at the high water mark of the rigid application of the law on conditions, the House of Lords was prepared to countenance the application of the de minimis rule. Indeed, it applies a fortiori in the more relaxed atmosphere described by Professor Atiyah at pp 52–7 of his work.

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deviations which businessmen and therefore lawyers will ignore’39. The argument runs thus: if the de minimis rule applies to those duties of the seller which relate to the goods, should it not also apply to those duties which relate to the documents? Thirdly, an argument against a requirement of strict compliance could also be based on SOGA 1979 s 15A, introduced by the Sale and Supply of Goods Act 1994 (SSOGA  1994). By virtue of this section, where a breach of the seller’s duties regarding the description of goods sold, their quality and fitness and their conformity with a sample is ‘so slight that it would be unreasonable for him to reject them’, the buyer is not entitled to reject the goods although they may be entitled to damages for the breach. Although the section speaks of goods and not of documents, it is arguable that it should apply to the documentary aspect of the seller’s performance in shipment sales since the section focuses on the goods’ ‘description’ which arguably includes their description in a bill of lading. If this is right, it is then arguable that the section deprives the buyer of the right of rejecting documents which did not conform to the requirements of the sale contract in a slight manner. It is unlikely, however, that such a change was intended and, in our view, it would be unfortunate if section 15A is allowed free rein in the context of documentary sales on shipment terms, with the consequent loss of certainty about the nature of the seller’s documentary duties40. The Report that accompanied the bill which later became SSOGA 199441 makes it clear that section 15A was ‘not intended as a major alteration in the law’42. Moreover, in the same Report, the Law Commission made it clear that it was not their intention to alter the effect of time clauses in commercial contracts43.

Authorities Against Strict Compliance As we explained earlier, three cases may be cited in support of allowing the seller some leeway in performing their documentary duties. However, all three cases fall short of clearly establishing that proposition as a rule of law. In the first, Jydsk Andels-Foderstofforretning v Grands Moulins de Paris44, a buyer was held by MacKinnon J not to have been entitled to terminate a contract of sale that the seller had broken by shipping goods in excess of the agreed amount and by tendering a weight certificate for the excessive amount: the buyer could not terminate because the excess in question came within the de minimis rule. There is 39 [1933] AC 470 at 479. The de minimis rule applies also to the seller’s duty to tender the goods in the quantity agreed in the contract of sale: Shipton, Anderson and Company v Weil Bros and Company (Ltd) (1912) 17 Com Cas 153. 40 See Benjamin, para 18–332. 41 Law Com No 160. 42 See ibid, para 4.21. 43 See ibid, para 4.24. 44 (1931) 39 Ll L Rep 223. The result of the case is now mirrored in SOGA 1979 s 30(2A)(b). See Benjamin, para 19–012 suggesting that this section is not applicable to the seller’s documentary obligations.

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no indication in the report of the case whether the judge treated the issue as one of rejection of goods or as one of rejection of documents: it was unnecessary for the judge to make such a distinction, for the facts were such that the offending document – a weight certificate – arrived (and was rejected) as the goods were being discharged (and rejected). Consequently, the case might just as well be authority for the proposition that the de minimis rule applies to the seller’s physical duty to tender goods in the contract quantity45 as of the other proposition – which is of more concern here – that it applies to the seller’s documentary duty as to quantity46. In the second case, Moralice (London) Ltd v ED & F Man47, the plaintiff, a buyer/ seller in the middle of a string, had been told by their seller, the defendant, that a bill of lading that was to be tendered under the contract of sale would show a slight discrepancy as to the amount of goods shipped. In view of that discrepancy, the plaintiff gave and honoured an indemnity to the bank paying under a letter of credit opened on the instructions of the buyer; the plaintiff had taken a similar indemnity from the seller, the defendant, and it was that second indemnity which the plaintiff sought to enforce in the case. The defendant sought, unsuccessfully, to argue that the indemnity they had given the plaintiff was unenforceable for lack of consideration. Having decided that the indemnity was enforceable as a contract, McNair J then needed to establish that the indemnity fell to be enforced on its terms. For the second indemnity to apply, payment by the plaintiff under the first needed to be justified; the question, therefore, was: would the bank, apart from the indemnity given it by the plaintiff, have been entitled to reject the documents? McNair J  decided48 that the bank was entitled to reject and this because the de minimis rule did not apply in documentary credits. The judge added, obiter, that the rule did apply as between the seller and the buyer ‘if the contract was not complicated by the intervention of a letter of credit’49, giving as authority for that dictum the Jydsk case50 cited above, a case which, as we have just seen, can just as easily be cited as authority for a quite separate proposition; and Shipton, Anderson & Co v Weil Bros & Co Ltd51, a case which clearly on its facts related to a breach by the seller of their physical duty to ship goods in the contract quantity rather than of their duty to tender documents in that quantity. The value of the case as authority for the proposition that the de minimis rule applies to all documentary duties imposed by shipment sales is consequently limited by two factors: firstly, McNair J’s dictum in this regard was obiter, the position under the contract of sale 45 See Shipton, Anderson and Company v Weil Bros and Company (Ltd) (1912) 17 Com Cas 153. SOGA s 30(2), which expressly gives the buyer the right to reject either the excess or the whole quantity tendered, appears to be subject to the de minimis rule. 46 The case was successfully cited before the Court of Appeal in Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 2 QB 430 as authority for the proposition that the de minimis rule could be invoked as much by a plaintiff as by a defendant: see pp 439F and 444B–C. 47 [1954] 2 Lloyd’s Rep 527. 48 Loc cit at 532. 49 Ibid. 50 (1931) 39 Ll L Rep 223. 51 (1912) 17 Com Cas 153.

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being clearly incidental to the main issue, namely, was the bank entitled to reject; secondly, far from stating the proposition as one applying generally to documentary duties, McNair J took care to restrict its ambit to the seller’s obligation regarding quantity only. In the third case, Tradax Internacional SA  v Goldschmidt SA52, the sale contract stipulated for shipment of barley containing no more than 4% foreign matter and for tender of shipping documents including a certificate of quality. When the goods arrived, the buyers learnt that the certificate of quality, which had not at that stage reached them, confirmed that the barley contained 4.1% foreign matter; the buyers rejected the documents on their subsequent arrival. After discharge of the goods at their destination, the buyers sold the goods for the sellers’ account at a price lower than the contract price: the sellers sued the buyers for the difference. Finding for the sellers, Slynn J held that the buyers were not entitled to reject the certificate of quality; or that if they were, they were estopped by their conduct from doing so. The buyers were, it seems, not entitled to reject the certificate of quality because it was a ‘good’ certificate, ‘it [did] what it was intended to do’ by showing ‘that there was not a full compliance with the contractual term as to quality’53; moreover, the breach attested to by the certificate was within the de minimis rule and that it could ‘not be treated as entitling a rejection either of a quality final certificate … or the goods’54. Slynn J  went on to hold that even if the buyers were entitled to reject the certificate of quality because it did not conform to the contract, they had waived their right so to do because they had initially accepted the goods on arrival fully aware that the goods and the certificate of quality did not meet the contract specification as to foreign matter. It is the first part of the ratio which is directly relevant, for it is clear that of the three cases here examined, this is the one that comes closest to establishing that the de minimis rule applies to documentary duties. It is suggested with respect, though, that the premise upon which the first part of the ratio is based is flawed by a misconception as to what constitutes a ‘good’ document. A ‘good’ document is not one which simply does what it is intended to do, but one which also does it in the manner stipulated in the contract. Thus, a bill of lading stating shipment out of time does what it is intended to do: it attests shipment on board on a given date; but it does not do it in the manner stipulated in the contract and, as we have seen55, it can, therefore, be rejected. By the same token, although the certificate of quality here was a certificate of quality (it did what it was intended to do), it was a bad certificate of quality (it did what it was intended to do badly and in breach of contract) and it could therefore be rejected56. If this is correct, then the authority 52 53 54 55 56

[1977] 2 Lloyd’s Rep 604. Loc cit at 612. Loc cit at 613. Re General Trading Co and Van Stolck’s Commissiehandel (1910) 16 Com Cas 95. It is possible that the argument rehearsed in the text was not open to Slynn J because the buyers appear to have accepted that the provision as to impurities was not part of the description of the goods: given that concession by the buyers, it would be difficult to argue that it could be rejected for the same reason that a bill of lading wrongly describing the date of shipment could be rejected. For this somewhat surprising concession, see [1977] 2 Lloyd’s Rep 604 at 612; and see

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of the first part of Slynn J’s judgment must be suspect, although the result is, with respect, amply justified by the second part of the ratio, based on estoppel57.

Strict Compliance is Preferable 9.17

Given the arguments on either side of the debate and given the inconclusive effect of the authorities, which of the two views is preferable? Should the seller be expected to comply strictly with their documentary duties even in the absence of a letter of credit, or should they be allowed some leeway such that the buyer could not reject documents which are only slightly defective? We suggest that the former is preferable for several reasons. First, the target of the de minimis rule in this area is the buyer who first receives a bill of lading giving, say, ‘101 tonnes’ as the quantity shipped, tendered under a contract providing for the shipment of 100 tonnes; the market price having dropped, the buyer now, whether before or after arrival of the goods at the port of discharge, purports to terminate the contract on the ground that the seller had tendered non-conforming documents. The de minimis rule would prevent the buyer from so doing because, just as shipment of one extra tonne is a microscopic deviation58, so is tender of a bill of lading stating such excess. The result would be the same, however, even if the de minimis rule were not applied to the seller’s documentary duty in this case. For a buyer who accepts documents defective on their face is in certain circumstances estopped from later repudiating the contract59: Panchaud Freres SA v Etablissements General Grain Company60. It appears, therefore, that the de minimis rule is not always necessary to prevent the sharpest form of practice which it is said to avoid, as long as the buyer has accepted the documents before they subsequently purport to reject them. The rule in Panchaud Freres61 does not, however, apply in two complicated sets of circumstances: (1)

The buyer may decide promptly on tender of a bill of lading defective on its face to reject the documents on the ground of a minor discrepancy: only

Benjamin, para 19–150, for a view supportive of this part of Slynn J’s judgment. It is interesting to contrast the concession made by the buyers in this case with that made by the sellers in Vargas Pena Apezteguia y Cia SAIC v Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394 at 395 and 396: in Vargas v Cremer, it was common ground between the parties that a certificate of quality showing a fat content of 15.73 per cent could be rejected by buyers who had stipulated for shipment of a cargo containing no more than 15 per cent fat content. The concession went unremarked, both before the Commercial Court and before the arbitrators who had gone on to find that there was ‘no difference whatsoever’ between the market value of the commodity containing 15.73 per cent and 15 per cent fat content. 57 As to which, see the discussion on Panchaud Freres SA v Etablissements General Grain Company [1970] 1 Lloyd’s Rep 53, at paras 9.35–9.42 below. 58 Lord Atkin’s phrase in Arcos Ltd v EA Ronaasen and Son, see para 9.15. 59 At paras 9.35–9.42 below. 60 [1970] 1 Lloyd’s Rep 53. 61 Ibid.

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de  minimis would prevent such a buyer from terminating the contract for purely commercial reasons. (2) The defect in the document may not be as blatant as that given in the illustration above: it may not appear on the face of the document, as where, for example, the shipment is mis-stated by, say, one day, concealing a breach by the seller of their duty physically to ship within the contract period. We shall see later62 that a buyer hoodwinked into accepting the documents in such circumstances can sue for damages for having been deprived of the opportunity of rejecting the documents: Kwei Tek Chao and Others v British Traders and Shippers Ltd63. A judge inclined to throw out a buyer’s action for recovery of such damages where it has been brought clearly for the purpose of capitalising on a drop in the market could not use Panchaud Freres64 against the buyer: the judge would need de minimis. These two situations therefore raise a question of principle: should the buyer be entitled to reject, in the first case; and should the buyer be entitled to recover damages for breach of the seller’s documentary duty in the second, simply on the pretext of a minor defect in the documents? We suggest that to deprive the buyer of those remedies on the basis that the documentary defects were slight would be to ignore an essential difference between the seller’s physical duties and their documentary duties in shipment sales. The seller performs their physical duties in an imperfect world of commodities difficult to measure and of port operations difficult to control. Here it makes commercial sense to give the seller some leeway in performance. The same is not true with regard to the seller’s documentary duties. The point is not so much that shipping documents are completed and collated in a clinically careful environment: speed is and has to be very much at a premium. The point, however, is that particularly in the trading of commodities, cargoes can only be – and are – traded confidently down a string very much on the faith of documents transferred from one trader to another. Parties all the way down the string have, after all, chosen to trade on terms involving the tender of documents; they have contracted for the delivery not only of physical goods but also of pieces of paper, precisely described and therefore accurately to be tendered and relied upon. As Kerr LJ put it in the Procter & Gamble case65, ‘this is not a trade in goods but in contracts for the shipment of goods’: once the parties have elected to trade not only in goods, but also in contractual rights symbolised by documents, then arguably the only form of tender can and must be perfect tender. It is only on this basis that it makes sense for each buyer, particularly the ultimate receiver, to purchase on terms that the risk of transit has passed to them as from the moment of shipment. Finally, it must be right that just as a beneficiary under a letter of credit will only be paid 62 63 64 65

At para 9.27 below. [1954] 2 QB 459. [1970] 1 Lloyd’s Rep 53. [1988] 2 Lloyd’s Rep 21 at 22.

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against a ‘complying presentation66’, so should a seller tendering documents in a cash against documents sale: these contracts operate together and the business community is ill-served by commercial law if conflicting answers were given to what is essentially the same question67. For all these reasons, we would suggest that the de minimis rule should not qualify the seller’s duty to comply strictly with the conditions expressed or implied in a shipment sale relating to the tender of documents.

(c)  The Seller Should Have no Right to Cure a Documentary Defect 9.18

If the position we take on this point is right, namely that a seller tendering documents in a cash against documents sale must comply strictly with their documentary duties, the next question which arises is whether a seller who tenders discrepant documents has a right to ‘cure’ their breach by re-tender. Money turns on this question where a buyer against a falling market is faced with a discrepant tender: in these circumstances, the seller runs the risk of being presented with an unpalatable choice by their buyer between lowering the contract price or seeing their documents, covering goods long at sea, rejected by the buyer. In Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG68, a case dealing with tender of bills of lading mis-stating the date of shipment by only 6 to 10 days, Kerr LJ put it thus: ‘on a plunging market the inability to present a bill of lading evidencing shipment within the contract period can have very serious financial consequences; the difference between the right to demand payment of the contract price on the one hand, and having to deal with “spot” goods of far lesser value, possibly involving considerable expenses in their disposal, on the other hand.’ The state of the authorities in this regard can be easily over-stated. There are three sets of dicta which would seem to infer that the seller does indeed have a right to cure a defective tender of documents with a retender of conforming documents. Thus, in SIAT di dal Ferro v Tradax, Megaw LJ said: ‘It should not be forgotten also, in this context, that the law, in the absence of a contractual term to the contrary, allows a seller who has presented defective documents to re-present, tendering correct documents, so long as he does so before the last permissible date provided by the terms of the contract or, in the absence of contractual terms, the date 66 See fn 33 above. 67 Contrast the views of McNair J in Moralice (London) Ltd v ED & F Man [1954] 2 Lloyd’s Rep 527 at 532 to those of Megaw LJ in SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53 at 62. 68 [1988] 2 Lloyd’s Rep 21 at 22. This case cannot, of course, be taken to support the general proposition that any defect, however minor, in the documents tendered by the seller entitles the buyer to repudiate the contract. The case related to a mis-statement as to the date of shipment and did not purport to lay down a general rule covering other defects in the documents.

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for presentation provided by the term which in those circumstances is implied by law. So that, if the correctness of the documents is a condition of the contract, in the Sale of Goods Act sense of the word, ‘condition’, the seller may have an opportunity to remedy even serious breaches before the buyer becomes entitled to treat the contract as repudiated69.’ However, Megaw LJ was here speaking obiter; indeed in the very next sentence he says: ‘I do not find it necessary to decide this question of principle. This is because there is in this case one type of documentary defect, common to all the three groups, which, in my judgment, is of such a nature that the buyers were entitled to reject the documents in each of the groups, on both the first and the second presentations.’ Part of Mance J’s judgment in Soon Hua Seng Co Ltd v Glencore Grain Ltd70 was similarly obiter: ‘The strictness [of documentary requirements] may sometimes be mitigated by the sellers’ ability to correct and re-present the documents, a point made by Lord Justice Megaw in the S.I.A.T. case, at pp 62–63. But whether or not that course would have been open, compliance with the present documentary requirement was in my judgment a condition precedent to any obligation on the part of buyers to take up the documents. Since the sellers did not in fact re-present complying bills, the contracts were not performed and the sellers were in breach through non-delivery.’ The third dictum which lends less than binding support to a right to cure documentary defects comes from the House of Lords case the Kanchenjunga71, where Lord Goff said as follows: ‘We can see these principles at work in the law of sale of goods. If goods are tendered which are not in conformity with the contract, the buyer is entitled to reject them. However, as is recognized by s 11(2) of the 1979 Act, where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may – … elect to treat the breach of the condition as a breach of warranty … Of course, if the buyer rejects the goods as not conforming with the contract, and the time for delivery has expired, the buyer can without more sue the seller for damages for non-delivery. If the time for delivery has not yet expired, the seller is still entitled to make a fresh tender which conforms with the contract, in which event the buyer is bound to accept 69 SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s 53 at 62–3. 70 [1996] 1 Lloyd’s Rep 398 at 403. 71 [1990] 1 Lloyd’s Rep 391 at 399.

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the goods so tendered: see Borrowman Phillips & Co v Free & Hollis (1878) 4 QBD 500.’ Although this dictum comes from a House of Lords case, first, the case actually related to the nomination of a safe port under a charterparty rather than the tender of documents under a sale contract; and secondly, the dictum itself refers to the retender of goods rather than retender of documents. Therefore, its status as authority on the question here being discussed is somewhat limited72. Being obiter, these dicta in the three judgments are of limited authority. The same cannot be said of the decision of the Court of Appeal in Borrowman Phillips & Co v Free & Hollis73, a case in which a seller was held by the court to be entitled to substitute a notice of appropriation before the time established for the sending of that notice. This case is said to support the proposition that a seller can re-tender if they still have time to do so74. The ratio of Borrowman, does not, however, address the question whether a seller is entitled to cure a defective documentary tender. The sending of a notice of appropriation is not the same as the tender of documents. The first involves a seller ‘writing in’ a detail left blank in the original contract: the notice, once sent, now specifies the vessel from which the seller is bound to tender goods, and the obligation to deliver is now completely defined. The tender of documents, on the other hand, involves the actual performance of one of the two modes of delivery in a documentary sale on shipment terms. In the language of Donaldson J in The Vladimir Ilich75, ‘an appropriation is a matter of contract, not of performance’. Consequently, the matter here being discussed is arguably not decided by the decision in Borrowman. With the matter technically free from authority then76, we would suggest for a number of reasons that a seller of goods under a documentary sale on shipment terms has no right to cure a defective documentary tender. First, contractual obligations are normally either performed or breached: a right to cure a documentary breach of condition would involve a third possibility, namely a breach of condition which could still be ‘performed’. Secondly, support for a right to cure in this context, even where enthusiastic77, has been limited to situations where the seller is under a duty to tender by a stated time78. The reality in documentary sales on shipment terms is that contracts rarely stipulate a time for tender of documents, the desire for payment providing the seller with ample incentive to tender as soon as the documents are available. Consequently, if there 72 It is interesting to note that The Kanchenjunga was not cited in Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s Rep 398. 73 (1878) 4 QBD 500 74 Goode Commercial Law, at p 12.19. 75 [1975] 1 Lloyd’s Rep 322 at 329. 76 See also Takahashi ‘Right to Terminate (Avoid) International Sales of Commodities’ [2003] JBL 102; Al-Rashoud ‘The right to cure defects in goods and documents’ [1999] LMCLQ 456; and Apps ‘The Right to Cure Defective Performance’ [1994] LMCLQ 525. 77 Goode Commercial Law, at pp 12.19–12.21.; for rather lukewarm support of a right to cure, see Benjamin at paras 12–031 to 12–032. 78 See also Lord Goff in The Kanchenjunga (fn 71 above).

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were a right to cure until the stipulated time arrived, this right would, at any rate in commodity sales, hardly ever arise. Thirdly, it is sometimes suggested that just as a beneficiary under a letter of credit can re-present documents until the date of expiry of a letter of credit, so a seller in a cash against documents sale should be entitled to re-tender conforming documents after a defective tender. This is, however, to lose sight of the fact that whereas a seller in a cash against documents sale is under a duty to the buyer to tender documents, a beneficiary owes no duty of tender to the bank. A second presentation under a letter of credit is therefore not the cure of a breach; a second tender under a sale contract would be. Finally and most importantly, documentary sales on shipment terms, particularly of commodities sold down strings in volatile markets, depend on prompt tender of conforming documents: this allows the commercial exploitation of goods while travelling inert at sea. Aware that they have but one opportunity to tender, sellers have an incentive to procure conforming documents, thereby performing their contractual obligations and facilitating string transfers of cargoes carried by sea. For these reasons, we take the view that there should be no right to cure defective documentary tender in English law, either in authority or in principle.

BUYER’S REMEDY OF TERMINATION: PRACTICAL CONSTRAINTS Physical and Documentary Performance in International Sales Where a sale contract is performed partly through the tender of documents, the remedy of termination must take account of the fact that the buyer may simply not know, at the time of tender, that the document is defective and that the buyer can therefore terminate: this is because documents can easily conceal breaches of contract in a way that physical goods cannot. Accordingly, blandly to state that the buyer has the option, on the occurrence of a documentary breach by the seller, to terminate the contract is to ignore the simple fact that a buyer might not, at the time the documents are tendered, know whether they should terminate before they have had an opportunity to examine the goods when they arrive79. It is these practical constraints that set termination for breach in shipment sales apart from the same remedy in domestic sales, where the mode of performance, and therefore the manner of terminating the contract for its breach, is unitary. It is these practical constraints which make a unitary concept of termination quite inappropriate for contracts in which performance is rendered more complex through the use of documents. The object of this part of the chapter is to unravel those practical constraints and thus to lay out the background for the

79 The buyer appears to be in something of a dilemma because it is clear that they cannot, on the other hand, wait to examine the goods before they pay the price: E Clemens Horst Co v Biddell Bros [1912] AC 18.

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examination, which follows in the next part of the chapter, of the dual rights of rejection possessed by a buyer in shipment sales.

Documents and Goods Travelling Separately; Clear and Hidden Documentary Defects 9.20

When evaluating the buyer’s ignorance as to the physical goods at the time they receive a bill of lading, it is helpful to distinguish between two key sets of circumstances: (1) where the documents reach the buyer before the goods do; and (2) where the goods reach the buyer before the documents do. Within each of those two situations, we need to further separate two types of case: (a) where the buyer notices a defect in the documents; and (b) where they do not. Each of these four hypotheses will be examined in turn.

Where Documents Reach the Buyer Before the Goods and the Buyer Notices Documentary Defect 9.21

In these circumstances, the buyer has an option to terminate the contract for breach of condition. Thus, where, for example, the destination given in the bill of lading tendered by the seller is not the same as that agreed in the contract of sale, the buyer can reject the documents without having to wait and see whether the goods are actually delivered at the port of discharge agreed in the sale contract80. The buyer is in no sense bound, of course, to terminate: against a stable, or indeed, a rising market, the buyer may well decide that, whatever their legal rights, it would make commercial nonsense to reject the documents, particularly if the defect appears to be insignificant. There is, however, as we shall see, a price to pay for acquiescence at this stage; for should the buyer later wish to terminate the contract, say when the goods arrive, they may find themselves barred from doing so by the doctrine of estoppel81.

Where Documents Reach the Buyer Before the Goods and the Buyer Does not Notice Documentary Defect 9.22

In this situation, the buyer has accepted the documents and is, therefore, likely to have paid the seller, whether directly, or indirectly through a bank where a letter of credit is in place. The buyer’s option to terminate raises two separate problems in this instance. First, a buyer who has parted company with the price in return for documents that appeared good on their face to be conforming is unlikely to be inclined to part company with the goods on arrival, even if the goods are defective through the seller’s breach to ship goods in conformity with the sale contract. Thus, for example, if a buyer has paid the contract price for a bundle of documents including an inspection certificate falsely stating, say, the moisture 80 SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53. 81 Panchaud Freres SA v Etablissements General Grain Company [1970] 1 Lloyd’s Rep 53. See paras 9.35– 9.36 below.

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9.23

content of a commodity to be within the tolerance allowed in the contract, they may not be keen simply to reject the cargo on arrival, despite the excessive moisture in the shipment and irrespective of price fluctuations in the market. The price has been paid to the seller: to return the goods to the seller may appear to the buyer rather like rewarding fraud with interest. Much better, it would seem, to accept the goods, realise their actual value and recoup the loss by way of an action in damages: we shall see in the next part of this chapter that this is precisely one of the results which flows from there being two rights of rejection rather than one. The second problem which the situation here discussed raises is less one of commercial judgment and more one of policy. The defect in the documents which the buyer failed to notice on tender may have had no effect on the physical condition of the goods themselves. This can be illustrated by the following example: a bill of lading is tendered, and paid for, wrongly stating the goods to have been shipped within the contract period; the goods were shipped one day outside the contract period, yet no physical loss is caused to the goods themselves; indeed, the goods are accepted by the buyer, who subsequently learns of the misdating of the bill of lading. In circumstances where the buyer has accepted tender of the documents and delivery of the goods, should the buyer be able now to raise any complaint at all with the seller? Does the buyer’s acceptance of both modes of performance tendered by the seller not now estop the buyer in some way from taking action? On the other hand, however, if the buyer were estopped, would this not lead to the result that a seller doubly in breach is in no way liable to the buyer? Again, we shall see presently that both results are avoided by the proposition that the two rights of rejection operate independently the one from the other and that the buyer’s reaction to tender of the goods (in our example, acceptance) when the buyer did not know of the defect in the documents (in our example, the statement of timely shipment where shipment was late) does not bar the buyer’s right to compensation for market loss by having been deprived of the opportunity to terminate the contract on tender of the documents.

Where Goods Reach the Buyer Before the Documents and the Buyer Notices Documentary Defect In this case, the buyer notices on tender of documents the documentary defect putting the seller in breach: consequently, they are unlikely at this stage to pay, much less to have paid, the price. One might have thought, therefore, that rejection of the documents would be the obvious, and the only, answer. What, however, has happened to the goods in the meantime? In the hypothesis here examined, they reach the port of discharge before the documents reach the buyer. Where the buyer rejects the goods on arrival, for example because they were not shipped in accordance with the specifications agreed in the contract of sale, then the buyer clearly can and will reject the documents when they arrive. There is any number of reasons, however, why the buyer might have accepted the goods. Firstly, the goods may have been ‘defective’, in the sense that they did not tally with their description in the contract of sale, in a manner quite undiscoverable by the buyer 251

9.23

9.24

Rejecting Documents and Goods

at the time of discharge: this is likely to be the case where, for example, the goods have been shipped late. Secondly, the buyer may simply have decided to accept the goods, albeit defective through the seller’s breach, for compelling commercial reasons: they may, for example, have an accommodating buyer further down the string; or they may themselves find some other use to which they could put the defective goods, particularly if the market price for the commodity is rising. Thirdly, and most obviously, the buyer might have accepted the goods because they conformed to the stipulations agreed in the contract of sale: the documents might, nonetheless, be defective in a way clearly discoverable on their arrival, as they would be, for example, if the bill of lading inaccurately states the goods to have been shipped outside the contract period82. Each of these three cases raises the same question: can the buyer reject the documents on arrival despite having first accepted the goods? We shall see presently that the answer depends in each case on the independent existence of the two rights of rejection and on the precise relationship between those two rights.

Where Goods Reach the Buyer Before the Documents and the Buyer Does not Notice Documentary Defect 9.24

If the buyer has rejected the goods on arrival, then, of course, they can and will reject the documents on tender. However, the buyer may have accepted the goods for any of the three reasons given in the previous paragraph. The situation here envisaged differs from the previous one, though, in that here the buyer is hoodwinked into accepting the documents when they arrive because the defect in the documents is undiscoverable on their face, as it would be, for example, where the date of shipment is inaccurately stated to have occurred within the shipment period. The question which arises in this case is similar to the one raised in connection with the second situation discussed above and it is this: if the buyer has accepted the goods, for whatever reason, and has also accepted the documents, are they then estopped from claiming recovery of any loss suffered either by the fact that they have accepted the goods or by the fact that they have accepted the documents? The negative answer which the law gives to that question is a direct result of the separate existence of the right to reject the documents and the right to reject the goods.

BUYER’S REMEDIES OF REJECTION: DOCUMENTS AND GOODS Legal Questions Raised by Dual Modes of Performance 9.25

Goods and documents rarely reach the buyer at the same time. This raises issues relating to the interrelationship between the buyer’s response to the arrival of 82 As happened in Re General Trading Co and Van Stolck’s Commissiehandel (1910) 16 Com Cas 95.

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9.27

both: first, how does the buyer’s reaction to one mode of delivery by the seller affect, if at all, their rights regarding the other mode of performance yet to be tendered by the seller? Secondly, where the seller successfully presents documents which are defective in a manner undiscoverable by the buyer (for example, where the bill of lading mis-states the date of shipment of the goods), to what extent is the buyer entitled to recover compensation for having been deprived of the opportunity at least to consider rejecting the documents? Thirdly, where the buyer accepts documents containing defects which the buyer noticed, or at any rate should have noticed, on tender, what effect, if any, does that acceptance have on the buyer’s potential right later to terminate the contract? Each of these three questions will be discussed in turn.

The Buyer has ‘Separate’ Rights of Rejection for Goods and Documents: James Finlay In Finlay (James) & Co Ltd v M V Kwik Hoo Tong Handel Maatschappij83 the Court of Appeal established the proposition that a seller of documents under a contract on shipment terms84 owes the buyer not only an obligation to deliver goods tallying with the contract specification, but also a separate duty to tender documents conforming with the contract; and that, consequently, breach of either duty made the seller liable to the buyer. The point in issue in the case related to the quantification of damages for breach of the documentary duty to provide a bill of lading accurately stating the date of shipment: that central aspect of the case will be dealt with in the next part of this section when we discuss quantification of damages for loss of the opportunity to reject the documents. Suffice it here to say that Finlay85 established the existence of independent rights of rejection of documents and goods.

9.26

(a)  The Buyer’s Separate Rights of Rejection are Also ‘Independent’: Kwei Tek Chao Rights of rejection are not only separate but also independent as between documentary and physical duties. For instance, it was left to Devlin J in Kwei Tek Chao and Others v British Traders and Shippers Ltd86 to elucidate that acceptance by the buyer of the performance tendered by the seller in one mode does not necessarily estop the buyer from rejecting the performance tendered by the seller in another mode. The independence of the two rights of rejection works, as it were, both

83 [1929] 1 KB 400. 84 That is to say, it is suggested, such sale contracts, whether CIF or FOB, which provide for tender of documents by the seller to the buyer: see, for example, Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604 and other cases cited in Benjamin, para 20–112; see also Benjamin, para 20–113. 85 [1929] 1 KB 400. 86 [1954] 2 QB 459.

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Rejecting Documents and Goods

ways: acceptance of the goods does not preclude rejection of the documents87; and acceptance of the documents does not preclude rejection of the goods88. The facts of the case were that a bank, paying under a letter of credit on behalf of the buyer, accepted tender of documents, including a bill of lading wrongly stating shipment of the goods to have occurred within the period allowed in the contract of sale. The buyers subsequently accepted the goods on their arrival at the port of discharge. At the time the documents were negotiated through the banks, the buyers did not know that the goods had actually been shipped outside the contract period: indeed, the bill of lading gave them every reason to believe that shipment had been timely. At the time of arrival of the goods, though, it appeared that the buyers knew of the late shipment89: for reasons which will presently become clear, however, Devlin J was content to hold that knowledge of late shipment at this time was irrelevant to the ‘broader grounds’ on which his decision rested90. The buyers sued the sellers on two alternative causes of action, the relevant one91 being for damages for breach of the sellers’ contractual duty to tender a bill of lading accurately stating the date of shipment. That is to say, buyers sued sellers for breach of the separate documentary duty established in the Finlay92 case. Counsel for the sellers argued against the application of the Finlay93 case on the basis that here the buyers knew, at the time the goods were delivered, that the goods had not been shipped within the contract period, and that they therefore knew, at that time, that the bill of lading inaccurately stated the date of shipment. Devlin J held that, whether the buyers knew, at the time of delivery of the goods, that the goods had been shipped late, the fact of the matter was that they did not know, at the (earlier) time of tender of the documents, that the bill of lading was defective: it was for breach of the documentary duty that the buyers were seeking recovery and their right to recovery for that breach survived the buyers’ later acceptance of the goods, possibly in full possession of the facts, of the sellers’ other mode of performance – the physical one. The crux is to be found in the following passage, which is cited at length because of its significance for the subject94:

87 Unless, of course, the buyer is aware, at the time the goods are accepted, that the documents are defective: see Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604. 88 The case also raises the issue of quantification of damages where the buyer seeks compensation for having been deprived of the opportunity to reject the documents because the defect in the documents, eg mis-stating the date of shipment, is undiscoverable by the buyer at the time of tender. That aspect of the judgment will be examined at paras 9.28–9.30. 89 There seems to have been some question as to this: contrast [1954] 2 QB 459, report of the facts at 463, and Devlin J’s judgment at 473–4, 480 and 493; see Benjamin, para 19–147, fn 1057. 90 [1954] 2 QB 459 at 480. 91 The buyers’ alternative cause of action was for repayment of the price as a claim for a consideration that had wholly failed; this claim was unsuccessful because Devlin J held that the mis-statement on the bill as to the date of shipment did not render the bill a nullity: see [1954] 2 QB 459 at 475–6. 92 [1929] 1 KB 400. 93 Ibid. 94 [1954] 2 QB 459 at 480–2.

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9.27

‘Here … there is a right to reject documents and a right to reject goods, and the two things are quite distinct. A CIF contract puts a number of obligations upon the seller, some of which are in relation to the goods and some of which are in relation to the documents. So far as the goods are concerned, he must put on board at the port of shipment goods in conformity with the contract description, but he must also send forward documents, and those documents must comply with the contract. If he commits a breach the breaches may in one sense overlap, in that they flow from the same act. If there is a late shipment, as there was in this case, the date of the shipment being part of the description of the goods, the seller has not put on board goods which conform to the contract description, and therefore he has broken that obligation. He has also made it impossible to send forward a bill of lading which at once conforms with the contract and states accurately the date of shipment. Thus the same act can cause two breaches of two independent obligations. However that may be, they are distinct obligations, and the right to reject the documents arises when the documents are tendered, and the right to reject the goods arises when they are landed and when after examination they are found not to be in conformity with the contract … It follows, therefore, as a matter of principle, that the action of the plaintiff on the second breach cannot affect his right to damages on the first breach. They are distinct not merely in law, but also as a matter of business. Having a right to reject the documents separately from a right to reject the goods, it is obvious that as a matter of business very different considerations will govern the buyer’s mind as he applies himself to one or other of those questions. When he has to make up his mind whether he accepts the documents, he has not parted with any money. If he parts with his money and then has to consider whether to reject the goods, wholly different considerations would operate. In the interval he may have had dealings with the goods; he may have pledged them to his bank, he may have agreed to resell the specific goods, and the position may have been entirely altered.’ For these reasons, both theoretical and practical in nature, Devlin J decided that the buyers’ acceptance of the goods did not preclude them from rejecting the documents, or rather, given that the defect in the documents was undiscoverable on tender, from recovering damages for having been deprived of the opportunity, at the time of tender of the documents, of rejecting those documents. Although the reverse proposition, namely that acceptance of the documents does not estop a buyer from later rejecting the goods did not arise for decision, the terms of Devlin J’s judgment were clearly wide enough to support it95: this much was clearly 95 The progress of the argument before him was such that Devlin J  felt constrained to discuss obiter (see [1954] 2 QB 459 at 484–9) the workings of the reverse proposition on the hypothesis

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acknowledged in Bergerco USA  v Vegoil Ltd96, where buyers who had accepted documents on tender were held entitled later to reject the goods on arrival. The separate and independent existence of the two rights of rejection resolves the questions posed in the four situations described at paragraphs 9.20–9.24 above. Those situations, it will be recalled, all raised difficulties caused by the practical constraints which would fetter the buyer’s right of termination for breach if that right were unitary and if it had to be availed of on first tender by the seller, that is to say, if the option had to be exercised whenever the goods or the documents reached the buyer, whichever was the first. The effect of the existence of two separate and independent rights of rejection will now be examined in the context of each of those situations.

The Two Rights of Rejection Where Documents Reach the Buyer Before the Goods and the Buyer Does not Notice Documentary Defect 9.28

Where the documents, arriving before the goods, contain a defect undiscoverable97 by the buyer, the following three propositions result from the separate and independent existence of the two rights of rejection: that, contrary to his view, there was but one right of repudiation in shipment sales. If that were the position, would any dealing with the documents constitute ‘an act … inconsistent with the ownership of the seller’ within the terms of SOGA 1979 s 35, the effect of which would be, in terms of that section, to preclude rejection of the goods? The question is of practical significance where a letter of credit is in place, as it was in the Kwei Tek Chao case itself: [1954] 2 QB 459; for under a letter of credit, it is common for the documents to be held by the banks in pledge: see para  2.62. Devlin J  said that, on the given hypothesis, neither pledge nor, indeed, transfer of the bill of lading would be ‘an act … inconsistent with the ownership of the seller’ within the terms of section 35; this because, where a bill of lading was transferred to a buyer, the most they could obtain by way of property (that is to say, subject to any express clause in the sale contract) was a conditional property, subject to the condition that the property would revert to the seller on rejection of the goods by the buyer: see Kwei Tek Chao [1954] 2 QB 459 at 487; The Playa Larga [1983] 2 Lloyd’s Rep 170 at 187; and Gill & Duffus SA v Berger Inc [1984] 1 Lloyd’s Rep 227 at 233. Consequently, the seller retained throughout a reversionary interest: and it was with that reversionary interest that the buyer could perform no act which was inconsistent. Thus, pledging the documents to a bank, or transferring them to a buyer further down a string, were both acts themselves subject to the condition of reversion to the seller, and could not, therefore, be inconsistent with the seller’s reversionary interest. On the other hand, the taking of physical possession of the goods by the buyer and the physical delivery of those goods to a sub-buyer would conflict with the seller’s reversionary interest and would, consequently, bar the buyer from rejection by virtue of SOGA 1979 s 35, so long as the buyer had had an opportunity to examine the goods as provided by section 34 of the Act: see Graanhandel T Vink BV v European Grain & Shipping Ltd [1989] 2 Lloyd’s Rep 531. 96 [1984] 1 Lloyd’s Rep 440, particularly at 445–6. See, for a discussion of other questions raised by this case, para 7.14 above. 97 Where the defect, though hidden in the document, is actually ‘discovered’ by the buyer before acceptance, for example, where the bill of lading mis-states shipment to have occurred within the shipment period and the buyer can prove the mis-statement at the time of tender, there is some doubt as to whether the buyer can reject the documents. On the one hand, it appears from Gill & Duffus SA v Berger Inc [1984] 1 Lloyd’s Rep 227 at 231 that, so long as the seller presents

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(a) Acceptance of the documents does not preclude later rejection of the goods. We saw, however, that as the buyer is likely to have paid the price in return for the documents, they are quite unlikely to reject the goods. (b) Acceptance of the goods does not preclude an action by the buyer for damages for having been deprived of the opportunity to reject the documents on tender. (c)

Compensation for loss of that opportunity can be claimed by the buyer even where the defect hidden in the document (for example, a statement inaccurately stating the goods to have been shipped within the contract period) had no physical effect on the goods.

The Two Rights Where Goods Reach the Buyer Before the Documents and the Buyer Notices Documentary Defect Where the goods reach the buyer before the documents do, even if the goods are in some way defective, the buyer might, for a number of different reasons, choose to accept the goods. But acceptance of the goods by the buyer does not preclude later rejection by the buyer of documents which they notice to be defective on tender.

9.29

The Two Rights Where Goods Reach the Buyer Before the Documents and the Buyer Does not Notice Documentary Defect Where the defect in documents tendered after acceptance of the goods is undiscoverable by the buyer, the buyer’s right vis-à-vis the documents is not so much a right to reject as one to recover compensation for loss of the opportunity to reject defective documents, that is to say, the same right to recovery which arose where documents reached the buyer before the goods, the buyer failing to notice a hidden defect in the documents. In short, at the time of tender the separate and ‘documents which appear on their face to conform to those called for by the contract’, the buyer must pay: to allow the buyer to reject the documents there and then in these circumstances would, in Lord Diplock’s words, ‘destroy the very roots of the system by which international trade … is enabled to be financed’. For a robust defence of this position, see M Arnheim ‘Sale of Goods: rules and pseudo rules’ (1988) 132 Sol Jo 1130. On the other hand, it is difficult to see why a buyer should be obliged to pay where they can reveal at the point of tender that a document good on its face conceals a repudiatory breach of contract by the seller. At any rate where fraud is involved, it would also be difficult to see why a bank in similar circumstances should be free to reject (see The American Accord [1982] 2 Lloyd’s Rep 1) while a buyer would not. Indeed, Lord Diplock himself says, loc cit, that ‘nothing I say is intended to cover cases of fraud’. See also Benjamin at paras 19–079 and 19–179 to 19–180. The conflict is between the need to facilitate trade through the certainty that payment will be made against documents good on their face and the need to discourage fraud. The reality is that, even if the buyer’s duty to pay were subjected to a fraud exception, a buyer inclined not to pay against documents good on their face would need to be certain of their ground, given the requirements for proving fraud on the part of the seller and the buyer’s own liability for non-payment if the buyer is, in the end, found not to satisfy those requirements.

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independent existence of the two rights of rejection means that the buyer’s right vis-à-vis the documents is in no way prejudiced by the buyer’s earlier acceptance of the goods. It is only that the right of rejection (being no longer available) is replaced with a right to damages98.

(b)  Damages for Loss of the Opportunity to Reject Documents Questions Raised by This Right of Recovery 9.31

Having identified the buyer’s right to damages for documentary defects, one needs to assess the measure of those damages. Three questions are here raised: (1)

What is the loss for which the buyer is to be compensated and how does it differ from the loss caused by breach of the seller’s physical duty to ship goods of the contract description?

(2)

Do the damages recoverable by the buyer cover losses caused by fluctuations in the market price of the goods and, if so, fluctuations between which dates?

(3)

Can the buyer recover where the seller is only in breach of a documentary duty and where that breach causes no loss to the buyer?

The Type of Loss Which can be Recovered 9.32

What exactly is the buyer’s expectation loss when they are deprived of the opportunity to reject the documents on tender? Where the market price for the goods is falling99, a genuine bill of lading would have avoided loss to the buyer which might arise in three different ways: (a)

First, where the price of the goods has fallen between the contract date/ price and the date of the seller’s repudiation, the buyer can claim the difference between the price in the sale contract and the market price at the point of repudiation. Specifically, where the buyer had bought the goods for their own use, they might have rejected the documents and bought the same type of goods, or even the same goods, at the current, lower market

98 It is sometimes suggested that the buyer might well have an alternative cause of action in tort, for fraudulent or negligent misrepresentation, where the seller has been responsible for the misstatement in the documents inducing acceptance by the buyer where rejection might have been more appropriate: see, for example, Goode Commercial Law, para 34.43. The absence of case law illustrating the application of the two torts of misrepresentation in this field is not surprising: the documents commonly tendered by the seller to the buyer contain many representations made by third parties, but few, if any, by the seller themselves. Even if a statement on a document originates with the seller, eg that relating to the quantity of goods shipped in a bill of lading, the statement is, at any rate on signature of the bill by the carrier, the carrier’s statement, for which the seller cannot be held liable in the tort of misrepresentation. 99 Where the market price rises, the buyer suffers no loss because they and their sub-buyers, if there are any, have bought the goods at a cheaper price.

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rate. Wright J put it in these terms in Finlay (James) & Co Ltd v M V Kwik Hoo Tong Handel Maatschappij100: ‘The buyer … has the right to reject the tender of documents and refuse to pay … if the shipment is not made in the contract month. The effect of misdating the bill of lading is to deprive him of that right by rendering its exercise impossible, if he relies, as in practice he generally must rely, and in law is entitled to rely, on the accuracy of the bill of lading date. He takes delivery of the goods and pays for them, because on the face of the bill of lading he is bound to do so under the contract, whereas if the bill of lading showed because it was a true document that the sellers could not enforce the contract, because the shipment was out of date, the buyer could and would refuse the tender and could obtain the same goods at their market price, which I assume to be lower than the contract price, that is, at a great saving to himself.’ (b)

Secondly, and similarly, the buyer can claim the difference in price between the contract price and a lower market price, where they envisaged a subsale. That is because the buyer has been deprived of the right to reject the documents and buy replacement goods at a lower price, but still sell to their on-buyer at the original contract price. Accordingly, where the buyer had bought the goods in order to satisfy sub-buyers under contracts further down a string, the buyer might have made a windfall by rejecting the documents, buying the same type of goods, or even the same goods, at the lower market price, and selling them to the buyer’s sub-buyers at the higher price agreed in the original contract with the sub-buyers101.

(c)

Indeed – and this is the third way the buyer might incur loss through having accepted incorrectly completed documents – the buyer might not only lose the opportunity of a windfall, but might also end up with rejected goods, bought expensively, which they can only sell at the cheaper market price: this would happen if sub-buyers learn of the late shipment and reject the goods against the buyer, their seller, on that ground.

It was this third type of situation which occurred in Finlay (James) & Co Ltd v MV Kwik Hoo Tong Handel Maatschappij102: could the buyers recover the difference between the value of the goods when shipment should have taken place under the contract and their value when shipment did take place in breach of contract; or could they recover the difference between the contract price and the price of the goods realised at auction when the buyers, having learnt of the defect in the documents, mitigated their loss by selling at the cheaper market price? Both 100 [1928] 2 QB 604 at 612; affirmed at [1929] 1 QB 400. 101 The buyer would only be in a position to do this, of course, where they had not already bound themselves to deliver goods on a particular ship by having tendered a notice of appropriation: see para 5.12. See also Euro-Asian Oil SA v Credit Suisse AG and others [2019] 1 Lloyd’s Rep 444. 102 [1929] 1 KB 400.

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Wright J and the Court of Appeal103 held that the proper measure of damages was the latter: the former reflected the loss caused by the seller’s breach of their duty to ship goods within the contract period, rather than that caused by the seller’s breach of their duty to tender a bill of lading accurately stating goods to have been shipped within the contract period. Indeed, where the seller’s liability was based not on the seller’s documentary breach, but on the seller’s physical breach, the courts had no option but to apply the former measure of damages, namely, the difference between the value of the goods on the contractual date of shipment and their value on the actual date of shipment. Thus, in Taylor and Sons, Limited v Bank of Athens104, on facts broadly similar to the Finlay case105, McCardie J awarded only nominal damages to the buyer because there was no difference in value between the value of the goods when they were shipped and their value when they should have been shipped. The cases are distinguishable106 on the ground that in Taylor107, which came to the judge by way of a case stated by an arbitrator, the loss for which the judge awarded damages was that caused by the seller’s breach of their physical duty to ship within the contractual period, and not that caused by the seller’s breach of their documentary duty.

Can the Buyer Recover Losses Caused by Market Fluctuations? 9.33

So far as concerns the loss caused to the buyer who has been deprived of the opportunity to reject documents containing a hidden defect, it is clear that the courts have had no qualms about allowing recovery for what appear to be market losses. Thus, as we have seen, in the Finlay case108, the buyer recovered the difference between the contract price and the price realised when the buyers sought to mitigate their loss by selling the goods at auction. This sum appeared to guard the buyer against a drop in market price between the time of contract and the time of the auction, which drop would otherwise have worked against them. Yet, no point as to market fluctuation was taken, either in argument or in the judgment. Again, in Kwei Tek Chao and Others v British Traders and Shippers Ltd109, the buyers recovered the difference between the contract price and the value of the goods when the buyers discovered that they could have rejected the documents had they known of the mis-statement as to the date of shipment. The buyers had accepted the goods. They could not sensibly sell the goods at auction because the 103 [1928] 2 KB 604 and [1929] 1 KB 400 respectively. 104 (1922) 27 Com Cas 142. 105 [1929] 1 KB 400. 106 And were, indeed, so distinguished: see per Greer LJ at [1929] 1 KB 400 at 414, and per Sankey LJ at 416–7. See also Benjamin, paras 19–207 to 19–208 and G H Treitel ‘Damages for Breach of a CIF Contract’ [1988] LMCLQ 457 at 458, for the view that, in Taylor, there was no documentary breach in respect of which loss could have been claimed or recovered. See also Benjamin, para 19–207. 107 (1922) 27 Com Cas 142. 108 [1928] 2 QB 604, affirmed at [1929] 1 KB 400. 109 [1954] 2 QB 459.

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market for the commodity had collapsed. The judge consequently awarded the difference between the market price and a very low salvage value for the goods, which on the figures in the case left the buyers with a substantial sum in damages. The buyers appear to have recovered a sum compensating them for having entered into a contract which subsequently turned out to be a bad bargain: yet not a voice raised on this score, either in the argument or in the judgment110. By contrast, it is clear from Taylor111 that, at any rate so far as concerns breach of the duty physically to ship the goods within the contract period, the buyer is not entitled to recoup losses resulting from market fluctuations: to permit such recovery would be to allow the buyer to avoid the effects of what has turned out to be a bad bargain, and contracting parties are taken to have assumed the risk of their bargains turning sour on them. McCardie J put it this way112: ‘It is vital to observe that the loss must result from the breach of warranty, as distinguished from a loss through having entered into the contract. It does not extend, I think, to a case where the loss results not from the breach of warranty but from an unfortunate or improvident bargain which the buyer may have made. Market falls are not generally due to a vendor’s default … To impose the burden of such a loss on the seller would be to saddle him with something for which he is wholly free from blame.’ How can the awards in Finlay113 and in the Kwei Tek Chao case114 be reconciled with the principle in Taylor and Sons, Ltd v Bank of Athens115 that a drop in the market is not a loss with which the buyer can saddle the seller? The question is raised in the main work on damages, McGregor on Damages, which suggests116 that the buyer in each of the first two cases was ‘claiming to be put into the position he would have been in not if the contract had been performed but if it had never been made’117. Recovery of such a claim was inconsistent with the general principles of compensation in contract claims and the court’s view was, 110 The only judicial voice which seems to have been raised, objecting to recovery based on Finlay principles, is that of Donaldson J  (as he then was) in The Kastellon [1978] 2 Lloyd’s Rep 203, particularly at 204 and 207, where the judge characterises recovery on such grounds as based on a ‘technicality’ and on ‘little merit’. The value of the case in terms of its authority on the question discussed in the text is limited: the question before Donaldson J was not whether Finlay should prima facie apply or how, but whether a force majeure clause in the contract protected the sellers from liability. 111 Ibid. 112 Loc cit at 147. 113 [1929] 1 KB 400. 114 [1954] 2 QB 459. 115 (1922) 27 Com Cas 142. 116 McGregor on Damages (17th edn, 2003), paras 20.102–20.103. 117 A  slightly different point is made in Benjamin, which is equally critical of the effect on the recovery of damages of Finlay and Kwei Tek Chao. At para 19–212: ‘Such cases are, moreover, open to criticism on the ground that to award market loss damages to a buyer who has lost the right to reject amounts to putting him into the same position as that in which he would have been, if he had indeed rejected’. (Emphasis added.) It is suggested, with respect, that the arguments

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we would further suggest118, ‘based on compromise rather than on logic’. Such criticism of Finlay119 and of Kwei Tek Chao120 ignores, with respect, the crucial fact that a sale contract on shipment terms involves performance through two means, physical and documentary. Thus, the buyers in these cases were not claiming to be put in the position they would have been in had the contract not been made: they were not claiming protection from market movements. By recovering what might appear to be a market loss, they were rather claiming to be put in the position they would have been in had the documentary aspect of the contract been performed, that is to say, had the seller tendered an accurate bill of lading. Had the sellers performed, the buyers would indeed have been able – and entitled – to purchase the goods at a lower market price. Viewed in that light, the ‘market loss’ was no more than the ‘estimated loss directly and naturally resulting, in the ordinary course of events, from the breach’ of which the rule in Hadley v Baxendale121 and SOGA 1979122 speak. The awards in Finlay123 and Kwei Tek Chao124 were thus the direct result of the breach of which the buyers complained, that is to say, the breach of the separate duty to tender genuine documents125.

Can the Buyer Recover Where There is a Defect in the Documents Alone, Causing no Loss? 9.34

The decisions in the Finlay126 and Kwei Tek Chao127 cases together indicate the high water mark of the separate existence of the right to reject the documents, for the loss of which right the law is prepared to award the buyer compensation through substantial damages. In both cases, the documentary breach which led to payment of the price – mis-stating the date of shipment – itself reflected a physical breach – shipping the goods outside the contract period. What, however, if the same documentary breach does not conceal a physical breach? What if the bill of lading inaccurately states the date of shipment in circumstances where both the stated date and the actual date fall within the contract period? Is the documentary duty to tender a genuine bill of lading so separate from the physical duty to ship within the contract period that a documentary breach of itself gives the buyer a right of rejection, or, where the price is paid, a right to substantial damages, even where there is no breach of the physical duty to ship within the contract period? This, our third question relating to quantification, rehearsed in the text in answer to the criticisms of Finlay in McGregor on Damages also offer an answer to the criticism of the case in Benjamin. 118 See text accompanying fn 105 above. 119 [1929] 1 QB 400. 120 [1954] 2 QB 459. 121 (1854) 9 Exch 341 at 354. 122 At sections 51(2) and 53(2). 123 [1929] 1 KB 400. 124 [1954] 2 QB 459. 125 See Vargas Pena Apezteguia y Cia SAIC v Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394 at 399. 126 [1929] 1 KB 400. 127 [1954] 2 QB 459.

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was anticipated by Greer LJ in Finlay128 and was answered against the buyer by the Court of Appeal in Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG129. The question has also received attention in Benjamin, whose view against recovery130 has now been vindicated by the decision in Procter & Gamble131. In Procter & Gamble, buyers had paid against documents inaccurately stating goods to have been shipped on 31 January; the goods were actually shipped on 6 and 10 February, both of which dates were within the contract period, which had been extended by agreement to 29 February. The buyers claimed132 substantial damages for breach of the seller’s contractual duty133 to tender a bill accurately stating the date of shipment; they sought quantification of their loss on the basis of Finlay134. The Court of Appeal found that, though the sellers were clearly in breach of their duty to tender a genuine bill of lading, the breach was not repudiatory because it did not conceal a breach of the physical duty to ship the goods within the contract period135. Once the documentary breach was not repudiatory, the buyers could only recover the loss caused by the mis-statement of the date of shipment on the bill, which was nil: consequently, the buyers received no damages at all. The judgment is, with respect, at odds with the separate existence of the seller’s duty to tender genuine documents136. If the breach complained of is documentary in nature, as it clearly was both in Finlay137 and in Procter & Gamble138, then it is not clear why the same documentary breach was any more serious in the first case than it was in the second, simply because, in the first, the seller was also in breach of their physical duty to ship goods within the contract period. If the seller owes the buyer two independent and separate duties, one documentary and the other physical, and if both modes of performance provide the buyer with opportunities 128 [1929] 1 KB 400 at 412. 129 [1988] 2 Lloyd’s Rep 21. 130 This is in line with Benjamin’s generally restrictive attitude to recovery of damages on Finlay lines: see fn 106 above and Benjamin, para 19–208 to 19–209; see also G H Treitel ‘Damages for Breach of a CIF Contract’ [1988] LMCLQ 457, particularly at 459–62. 131 [1988] 2 Lloyd’s Rep 21. 132 The progress of proceedings from arbitration, where the buyers appear to have been the claimants, to litigation, where the sellers were the plaintiffs, was long and somewhat tortuous: see [1988] 2 Lloyd’s Rep 21 at 27. The crucial point before the Commercial Court (see [1988] 1 Lloyd’s Rep 88) and before the Court of Appeal was whether the buyers had a right to substantial damages for having been deprived of the opportunity to reject the documents. 133 The duty was expressed in GAFTA 100, clause 6; but the Court of Appeal was clearly of the view that the duty would have been implied in the absence of the express term: see fn 22 above. 134 [1929] 1 QB 400. 135 See [1988] 2 Lloyd’s Rep 21 at 28–30 and 32. 136 As it is with the position of the bank in a sale contract where payment is by letter of credit. Here, it would be clear that a bank would be entitled to reject documents where one document indicates shipment on one date and another document on another, despite the fact that both dates come within the shipment period. This would be ‘conflicting data’ for the purposes of UCP 600 art 14(d). 137 [1929] 1 QB 400. 138 [1988] 2 Lloyd’s Rep 21.

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to sell goods on in the market, then it should follow that a purely documentary breach should give the buyer substantive remedies. Such considerations are, indeed, present in the judgment of the Court of Appeal itself. Thus, Kerr LJ is at pains to point out that the buyer in the position of Procter & Gamble might, in some circumstances, have a right to substantial damages139: ‘For instance, a falsely dated bill of lading becomes effectively unmerchantable … once its true date is known. Its presentation by the seller was a breach of contract even if the goods were in fact shipped during the contractual shipment period, as in the present case. In such circumstances it may well be possible for the buyers to show that they suffered loss as the result of this breach. Thus, they may have found themselves “locked in” on a falling market by holding a non-transferable bill of lading, when they might otherwise have been able to sell the goods afloat, albeit at substantially less than their original contract price. Alternatively, they might be able to show that if the bill of lading had been correctly dated they could have used it to to fulfil a previously concluded sub-sale covered by a notice of appropriation with which they were now unable to comply.’ It is not altogether obvious why the buyers in either of the two examples envisaged by Kerr LJ should be entitled to substantial damages, while the buyers in Procter & Gamble140 itself were not. Although there appears not to have been any sub-sale to trouble the buyers in Procter & Gamble, it is clear that they were ‘locked in’ on a falling market such that they could not sell the goods afloat by transferring the documents: they had, instead, to await the arrival of the goods and sell them at 57 per cent of the contract price141. Again, loss of a sub-sale, Kerr LJ’s second example of recoverable loss, is another typical type of damage against which the buyer seeks protection when they insist on performance by the seller of the seller’s separate documentary duty to tender a genuine bill of lading142. With respect, neither of the examples given by Kerr LJ is in any sense exceptional: they are the stuff of which the independent right of rejection of documents, tendered in breach of independent documentary duties, is made. On the present state of the authorities, it is difficult to state the law with any greater degree of certainty than this: where the buyer is hoodwinked into paying against inaccurate documents, the buyer can recover substantial damages for having been deprived of the opportunity to reject the documents in two sets of circumstance: either, first, where the inaccuracy in the documents conceals a breach by the seller of the physical duty to ship the goods as stipulated in the contract; or, secondly, where, although the documents do not conceal such a breach, the inaccuracy in

139 [1988] 2 Lloyd’s Rep 21 at 30; see also, per Nicholls LJ at 33. 140 [1988] 2 Lloyd’s Rep 21. 141 See [1988] 2 Lloyd’s Rep 21 at 24. 142 Indeed, the buyers in Kwei Tek Chao had lost a subsale because of late shipment: see [1954] 2 QB 459 at 462–3.

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the documents causes the buyer an identifiable143 commercial loss which they would not have suffered had the documents been accurate.

(c)  Loss Through Estoppel of the Right to Terminate Can a Buyer Terminate After Accepting Clearly Defective Documents? By virtue of the separate and independent existence of the two rights to reject documents and goods, the buyer’s acceptance of documents in no way fetters their right later to reject the goods on arrival. On the other hand, to permit termination in these circumstances would seem to allow the buyer to blow hot and cold on the same event, late shipment, albeit one giving rise to two breaches, one physical, the other documentary. To examine how the courts have resolved this dilemma is our central task in this last part of our discussion of the buyer’s two rights of rejection.

9.35

Panchaud Freres The case law on the question is dominated by the Court of Appeal’s decision in Panchaud Freres SA  v Etablissements General Grain Company144. In that case, the documents were tendered and accepted before the arrival of the goods; this, despite the fact that it was clear that the goods might have been shipped outside the contract period: the bill of lading was dated within the contract period, while a certificate of quality tendered with the bill indicated that the goods had been inspected ashore after the contract period. The buyers rejected the goods on arrival, eventually, on the grounds that the goods had been shipped late and that the bill of lading had been falsely dated145. The buyers’ claim for recovery of the price was thrown out by the Court of Appeal146 in a decision which needed to side-step two principles the application of which might otherwise have given victory to the buyers.

143 There is some indication in Procter & Gamble that the buyers had not taken the trouble sufficiently clearly to identify the precise nature of their loss, being content rather piously to mouth the Finlay incantation: see [1988] 2 Lloyd’s Rep 21 at 30 and 32. 144 [1970] 1 Lloyd’s Rep 53. The point was anticipated by Devlin J in Kwei Tek Chao and Others v British Traders and Shippers Ltd [1954] 2 QB 459 at 481. 145 The buyers had originally rejected the goods on grounds which might have justified action against the carrier rather than rejection against the sellers, namely that the goods did not correspond to their description on the bill of lading: see [1970] 1 Lloyd’s Rep 53 at 56. 146 The proceedings were long and protracted, involving as they did a reference to arbitrators, an umpire, the relevant trade’s Committee of Appeal, a case stated to Roskill J, and finally an appeal to the Court of Appeal. Indeed, so lengthy were the proceedings that there seems to have been some confusion as to who initiated them. It is clear from the report of the case at first instance that the claim was one for recovery of the price, brought by the buyers: see [1969] 2 Lloyd’s Rep 109 at 111 and 118. It seems quite unlikely that the sellers should have claimed damages from the buyers, pace Denning MR at [1970] 1 Lloyd’s Rep 53 at 56, since the buyers had paid the purchase price on tender of documents.

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Is Constructive Notice of the Documentary Defect Enough for the Buyer to be Estopped? 9.37

First, the Court of Appeal needed to side-step the well-established principle that ‘our commercial law sets its face resolutely against any doctrine of constructive notice’147. The issue was whether the buyers were, by accepting documents which clearly cast doubt on the date of shipment, later precluded from rejecting the goods for late shipment or for tender of a bill of lading falsely stating shipment to have been timely. The doctrine of waiver would have defeated the buyers in this case, were it not for the somewhat unhelpful terms in which the facts were found at arbitration. Whilst the buyers had learnt that the goods were shipped out of time after tender, ‘they cannot be deemed to have been unaware’ of that fact and of the false dating of the bill of lading at the time of tender148. To have held that the buyers had waived their right to repudiate the contract on these grounds would, on such a finding, have been perilously close to holding that they had forfeited their right by failing to act on knowledge which they should have had (constructive notice), rather than on knowledge which they did actually have (actual notice). Lord Denning MR avoided the difficulty with characteristic deftness: rather than calling for the application of the doctrine of waiver, this case called for the application of another doctrine; and that other doctrine was not so rigorous in its requirement of actual as opposed to constructive knowledge149. Lord Denning put it thus150: ‘The present case is not a case of “waiver” strictly so called. It is a case of estoppel by conduct .… Applied to the rejection of goods, the principle may be stated thus: If a man, who is entitled to reject goods on a certain ground, so conducts himself as to lead the other to believe that he is not relying on that ground, then he cannot afterwards set it up as a ground of rejection, when it would be unfair or unjust to allow him so to do.’ Though lip-service was paid to the view that rights should not be allocated by commercial law on the basis of constructive notice151, it was clear that the Court of Appeal was quite happy to estop the buyer from terminating the contract where they knew or should have known at the time of tender of the facts now alleged to justify repudiation152. 147 See [1970] 1 Lloyd’s Rep 53 at 57, per Denning MR, and cases there cited. 148 [1970] 1 Lloyd’s Rep 53 at 56. 149 For a similar view, see Benjamin, para 19–173. 150 [1970] 1 Lloyd’s Rep 53 at 57; see also at 59, where Winn LJ describes the principle as ‘a requirement of fair conduct … negativing any liberty to blow hot and cold in commercial conduct’. 151 See [1970] 1 Lloyd’s Rep 53 at 57 and 60. 152 It is this aspect of the judgments in the case that has raised eyebrows in some quarters: see, for example, Benjamin, para 19–173 and Wilken and Villiers, Waiver, Variation and Estoppel (John Wiley & Sons, 1998), pp 85–87. The status of Panchaud is nonetheless established: the case has been judicially considered or applied on several occasions: eg Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1971] 2 QB 23; Alfred C Toepfer v Cremer [1975] 2 Lloyd’s Rep 118; The Shackleford [1978] 1 Lloyd’s Rep 191; there have, however, been occasions where the judges have been careful not to apply Panchaud beyond the parameters set out by the Court of

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9.38

The Two Rights are not Completely Independent Secondly, the Court of Appeal needed to side-step the principle which seemed to support the buyers’ entitlement to reject the goods on the basis that the buyer’s right to reject the goods is separate and independent of their right to reject the documents, and that, therefore, acceptance of the documents could not restrict the buyer’s right to reject the goods, whatever the buyer knew or should have known at the time of tender. In essence, the question before the court was whether that general principle, which clearly responded as we have seen to a number of commercial needs153, was restricted by the doctrine, pace Denning MR, of estoppel by conduct, or by the requirement, pace Winn LJ, of fair conduct in commercial dealings. The court was clearly of the view that the two rights of rejection were not as independent as the buyers in this case would wish them to be. Winn LJ put it in this way:154 ‘[I]n one sense of language of course, where there is a condition that a bill of lading in accordance with the contract terms, and a genuine correct bill of lading, should be tendered, breach of that obligation is a breach of a condition relating to the tender of such a document, whereas failure to deliver goods which were in fact shipped timeously within the contract period is a breach of a different condition: that is so in one sense of language – in another sense, much more realistic when one is talking of commercial matters, they are both really breaches of the same condition, that is to say of shipment within the contract period; since the requirement of the contract that a bill of lading be tendered is related to the obligation to ship timeously as a convenient form of producing evidence, or of enabling the matter to be dealt with in chain transactions: one is ancillary to the other.’ To call documentary and physical duties breaches and remedies ‘ancillary’ to each other is, perhaps, we would suggest, to overstate the point155. Clearly, though, the Appeal in the case itself: see V Berg & Son Ltd v Vanden Avenne-Izegem PVBA [1977] 1 Lloyd’s Rep 499 at 504–5, per Lawton LJ; and The Proodos C [1980] 2 Lloyd’s Rep 390 at 392, per Lloyd J; and yet at least one other occasion where the Court of Appeal decided that a party could not be taken to have elected whether or not to terminate a contract for breach unless they actually knew both of the facts giving rise to the option and of the right of election itself: Peyman v Lanjani [1985] Ch 457, where Panchaud was cited neither in the judgments nor in the arguments. Most recently, the Court of Appeal had occasion to examine the theoretical basis of Panchaud in Glencore Grain Rotterdam BV v Lorico [1997] 2 Lloyd’s Rep 386 at 395–8: while approving of the effect of Panchaud, Evans LJ concludes that it is not a separate doctrine, but one which can be based either on SOGA 1979 s 35 or on established principles of estoppel. 153 See paras 9.26–9.30 above. 154 [1970] 1 Lloyd’s Rep 53 at 60–1. 155 See Benjamin, para  19–147. It is also perhaps, and with respect, this way of thinking that led the court to characterise its decision as in some way derogating from the rule that a party who terminates a contract for the wrong reason, or for none at all, is not precluded from later setting up a legitimate cause for repudiation existing at the time of the repudiation. If a buyer on

267

9.38

9.39

Rejecting Documents and Goods

Court of Appeal was not prepared so to distil documentary rights and remedies as to detach them completely from their physical raison d’être, the sale of physical goods. The Buyer is Estopped From Rejecting Goods on Similar Grounds 9.39

With waiver and the independence of the two rights of rejection safely out of harm’s reach, then, the primary effect of Panchaud Freres156 appears to be that where the buyer learns or ought to have learnt from the documents, on tender, that a defect in the documents entitles them to reject the documents, and yet they do not so reject, they are estopped from later raising that defect, or the breach by the seller of the physical duty reflected in that defect157, as grounds for rejecting the goods on their arrival158. Two other propositions appear to follow from the judgments in Panchaud Freres159 neither of which arose for decision in the case itself: each will be taken in turn. The Buyer is Estopped From Recovering Damages for Loss of the Opportunity to Reject

9.40

It would seem to follow, from the Court of Appeal’s decision, that a buyer who accepts documents knowing them to be defective cannot recover damages from shipment terms has but one right to repudiate, then Panchaud would indeed qualify that rule, and some justification would need to be found accommodating the qualification: see, for such justification, Benjamin, para 19–173. We suggest that the answer is to be found differently. The buyer has two rights to terminate a contract on shipment terms; those two rights are, in principle, separate and independent; it is that principle which the decision in Panchaud, for good reasons of policy, qualifies rather than the rule allowing a change of ground justifying repudiation. The latter rule is in any case somewhat difficult to apply in the context of shipment sales which are performed through two separate modes, physical and documentary; and others have gone so far as to suggest that the rule is, as a matter of general law, illusory: see M Arnheim ‘Sale of Goods: Rules and Pseudo Rules’ (1988) 132 Sol Jo 1130. The issue has arisen in cases where the buyer has sought to defend themselves in an action by the seller for wrongful rejection of documents by pleading, after an initial rejection on documentary grounds, that the seller was in breach of a physical duty to ship goods conforming to the contract. In such circumstances, it was held by the House of Lords that the buyer could not now plead the seller’s physical breach to avoid their own liability for wrongful rejection of documents, although the buyer could plead the effects of that physical breach in reduction of the quantum of their own liability towards the seller: Gill & Duffus SA v Berger Inc [1984] 1 Lloyd’s Rep 227. See, generally, Benjamin, paras 9–017, 19–204 to 19–214; and G H Treitel ‘Rights of Rejection in CIF Sales’ [1984] LMCLQ 565. 156 [1970] 1 Lloyd’s Rep 53. 157 See, in particular, [1970] 1 Lloyd’s Rep 53 at 58, per Denning MR. 158 Clearly, the result would be the same where the goods reach the buyer before the documents do and the buyer accepts the goods in the knowledge, actual or constructive, that, say, goods had been shipped containing more impurities than allowed by the contract: Panchaud would estop the buyer from later rejecting the documents on that particular ground of non-contractual shipment or on the ground that a non-contractual certificate of quality had been tendered: Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604, discussed further at para 9.16 above. Panchaud was not cited in Tradax v Goldschmidt, but it is suggested that the later case, decided by Slynn J, is clearly an application of the earlier Court of Appeal authority. 159 [1970] 1 Lloyd’s Rep 53.

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9.40

the seller for having been deprived of the opportunity to reject the documents: in such a case, the buyer is not deprived by the documents of the opportunity to do so, but by their own conduct in having knowingly accepted defective documents. The state of the authorities on this proposition is at once interesting and uncertain. In its favour is the judgment of Saville J in Vargas Pena Apezteguia y Cia Saic v Peter Cremer GmbH160; against, the judgment of Cooke J in Kleinjan & Holst NV Rotterdam v Bremer Handelsgesellschaft GmbH Hamburg161. In both cases, buyers accepted documents when aware of defects therein162, both buyers reserving their rights as they did so; in neither case was Panchaud Freres163 cited. The crux of the debate is this: should the decisions in Finlay164 and Kwei Tek Chao165, compensating the buyer for loss of the opportunity to reject the documents, apply whether or not the buyer knows of a defect in the documents when the buyer accepts and pays for them? Cooke J  in Kleinjan & Holst v Bremer Handels166 thought the buyer should be compensated, because167: ‘the decision in Finlay’s case lays down a general rule as to the measure of damages in cases where the sellers have broken a condition of the contract by failing to tender proper documents and the buyers, not having rescinded, are entitled to recover damages for the breach. The reasons why the buyers have not rescinded are immaterial.’ Furthermore, the buyers had expressly reserved their rights when accepting the documents and this reservation must have included the buyers’ right to damages resulting from the sellers’ breach of their documentary duties168. To hold otherwise would be to undermine the purpose of reserving one’s rights. By contrast, Saville J in Vargas v Cremer169 decided that Finlay170 was inapplicable where the buyer knew at the time of tender that the documents were defective. Rather than founding that conclusion on Panchaud Freres171, though, the judge went back to first principles: recovery for breach of contract was limited to those losses caused by such breach; and the loss for which the buyers sought recovery in the 160 [1987] 1 Lloyd’s Rep 394. 161 [1972] 2 Lloyd’s Rep 11. 162 In Kleinjan & Holst v Bremer Handels [1972] 2 Lloyd’s Rep 11, the documents did not represent the same goods as those described in the first, valid but inaccurate, notice of appropriation. In Vargas v Cremer [1987] 1 Lloyd’s Rep 394, a certificate of quality indicated that the fat content in the commodity exceeded that allowed by the contract: as to this aspect of the case, see fn 56 above. 163 [1970] 1 Lloyd’s Rep 53. 164 [1929] 1 KB 400. 165 [1954] 2 QB 459. 166 [1972] 2 Lloyd’s Rep 11. 167 Loc cit at 22. 168 Loc cit at 21. 169 [1987] 1 Lloyd’s Rep 394. 170 [1929] 1 KB 400. 171 [1970] 1 Lloyd’s Rep 53.

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case was not caused by the sellers’ breach but by the buyers’ own conduct. Saville J put it in these terms172: ‘If the buyers know of the breach, however, then the position is different [to Finlay], for without more there is then no causal connection between the breach and the loss of the right to reject. The buyers know that they may reject if they wish to do so – the breach does not cause them to accept the documents. In such a case to award damages where the documents have been accepted on the basis of the difference between the contract and market prices at the date of the breach is to award damages that simply do not flow from the breach173.’ As for the buyers’ reservation of their rights when accepting the defective documents, Saville J was, with respect, almost coldly dismissive174: ‘they can only reserve what rights they have – if they choose to accept the documents with knowledge of the breach, then the rights they have are the rights attached to that case, and not those that would exist if they had taken a different course of action.’ Doubtless the judge was influenced by the suspicion, common in these cases as we have seen, that the buyers were attempting an escape from an improvident bargain. Saville J effectively says as much quite frankly175: ‘the conduct adopted by the buyers was not the result of the breach – that conduct was not caused or dictated by the fact that the documents showed an excess of fat but doubtless by the fall in the market which was quite unrelated to the breach in this case.’ Whatever the motives of the buyer in Vargas v Cremer176, the effect of the judgment is rather harsh on a buyer who, aware of a documentary defect of little consequence to them, is hoodwinked into accepting the documents concealing another defect which is more significant. Thus, for example, a buyer may be prepared to accept a bill of lading stating shipment to have been late, but not a certificate of origin mis-stating the origin of the goods. The decision of Cooke J in Kleinjan & Holst v Bremer Handels177 would protect the buyers in these circumstances; that of Saville J in Vargas v Cremer178 would not. It is perhaps unfortunate that, although Saville J gave the parties leave to appeal from his judgment to the Court of Appeal, the case appears to have gone no further and consequently the law in this area remains uncertain. 172 [1987] 1 Lloyd’s Rep 394 at 399. 173 Such an award, which had in fact been made by GAFTA’s Board of Appeal, would, Saville J pithily says later in his judgment (at [1987] 1 Lloyd’s Rep 394 at 399) be ‘neither fair nor compensation’. 174 [1987] 1 Lloyd’s Rep 394 at 399. 175 Ibid. 176 [1987] 1 Lloyd’s Rep 394. 177 [1972] 2 Lloyd’s Rep 11; if the buyer learns of non-contractual origin of the goods by the time of arrival, they would still, though, be entitled to reject the goods on arrival: see para 9.41 below. 178 [1987] 1 Lloyd’s Rep 394.

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9.42

Buyer not Estopped from Rejecting Goods on Other Grounds The buyer may nonetheless be entitled to reject the goods if they learn by the time of their arrival of another physical breach not revealed by the documents (this notwithstanding the view taken in Vargas v Cremer179, that the buyer may be estopped from recovering damages for the loss of the right to reject the documents). It seems to follow from the Court of Appeal’s decision in Panchaud Freres180 that the buyer is not estopped from later rejecting the goods on their arrival on some other ground. Thus if, on the facts of Panchaud181 itself, the moisture content in the goods were outside the contractual allowance and the certificate of quality, apart from accurately stating the late date of shipment, falsely stated that moisture content in the goods was within the contractual allowance, then the buyer would, it is suggested, not be estopped from rejecting the goods against the seller182 and presumably from recovering damages compensating the buyer for the loss resulting from that physical breach: in short, the estoppel must be limited to the ambit of those defects which first gave rise to it.

9.41

Summary of the Effects of Panchaud Freres The overall effect of the Court of Appeal’s judgment in Panchaud Freres can be summarised in the following four propositions: (1) Where the buyer learns or ought to have learnt from the documents, on tender, that a defect in the documents entitles the buyer to reject the documents, and yet the buyer does not so reject, the buyer is estopped from later raising that documentary defect, or the physical breach it reflects, as grounds for rejecting the goods on their arrival183. (2)

Where the buyer accepts goods when aware, or when they should have been aware, that the goods were shipped in a defective condition, such that the buyer was entitled to reject them, the buyer is estopped from later raising that physical defect, or the documentary defect reflecting it, as grounds for rejecting the documents on their arrival184.

179 [1987] 1 Lloyd’s Rep 394. 180 [1970] 1 Lloyd’s Rep 53. See also Benjamin, para 19–166. 181 [1970] 1 Lloyd’s Rep 53. 182 In a similar sense, see Benjamin, para 19–166. It is in this type of case that the buyer’s right to examine the goods, enshrined in SOGA 1979 s 34, retains any relevance to those shipment sales where the seller is under an obligation to tender documents and ship goods; for it is only through the survival of this right of examination beyond the acceptance of documents that the buyer can discover another legitimate cause for rejecting the goods: see Benjamin, para 19–166. In other types of case, sections 34 and 35 (Acceptance) of the 1979 Act ‘are not easy to apply to CIF contracts, in which there are separate rights to reject the goods and the documents’: Benjamin, para 19–166. Where the seller is under no duty to tender documents, eg in straight FOB contracts, then, of course, this difficulty does not arise: see Benjamin, paras 20–112 to 20–118. 183 See para 9.39 above. 184 See para 9.34 and fn 139 above.

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9.43 (3)

Rejecting Documents and Goods The buyer considered in the first proposition stated above is also estopped from claiming damages for having lost the opportunity to reject the documents on tender185, and, at any rate on one view186, this remains so, whatever other documentary defects later come to light.

(4) Such a buyer is not, however, estopped from rejecting the goods on arrival on the grounds of a physical breach by the seller, other than that reflected in the documentary defect of which the buyer was aware on tender; neither is the buyer estopped from claiming damages for that other physical breach187.

Is the Buyer Estopped Through Actions of a Bank? 9.43

Throughout our examination of the implications of the Court of Appeal’s decision in Panchaud Freres188, we have assumed that the buyer has accepted documents defective on their face directly from the hands of the seller. The discussion would be incomplete without asking whether the buyer’s position vis-à-vis the seller is different where a letter of credit is in place. Where banks accept a non-complying presentation of documents, they are in breach of the most fundamental obligation under the contract setting up the letter of credit, namely the duty to pay the sum of the credit only against documents conforming to the instructions given by the buyer189; and the buyer can look to their remedies against the bank under the letter of credit for breach of that obligation. The question which arises here, though, is whether acceptance by a bank of patently defective documents in any way estops the buyer from taking action which the buyer might otherwise have taken under the contract of sale: does Panchaud Freres190 bite against the buyer when the patently defective documents have been accepted, not directly by the buyer themselves, but by the bank? Money turns on the point in three different situations, which it would be useful to illustrate by adding two circumstances to the facts of Panchaud191 itself; that is to say, by assuming payment in the case by letter of credit, and by assuming that the banks had accepted the documents, which, it will be recalled, clearly showed an inconsistency as to the date of shipment:

185 See para 9.40 above. 186 Vargas v Cremer [1987] 1 Lloyd’s Rep 394. 187 See para 9.41 above. 188 [1970] 1 Lloyd’s Rep 53. 189 See UCP 600 art 2, which defines a credit as ‘any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation’. See also article 14(d) which reads ‘data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit’. 190 [1970] 1 Lloyd’s Rep 53. 191 Ibid.

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(1) Where the buyer accepts and pays for documents from the bank192, the buyer cannot, we submit, blow hot and cold on the patently defective193 documents, accepting them as against the bank, but purporting to reject them as against the seller.194 (2) If the buyer accepts and pays for the documents from the bank, the buyer can still reject the goods, on some ground other than that which was apparent on the face of the document. Acceptance of the documents first by the banks, then by the buyer themselves from the banks, makes no difference to the buyer’s right to reject the goods on new grounds. (3) If the buyer who accepts and pays for the documents from the bank then discovers another documentary defect which was not apparent on the face of the documents, can they sue the seller for having been deprived of the opportunity to reject the documents? The answer will here depend on whether the judgment of Saville J in Vargas v Cremer195 or that of Cooke J in Kleinjan & Holst v Bremer Handels196 is followed. If the former is followed, then the buyer cannot recover damages for loss of the opportunity to reject the documents, not so much because the banks’ acceptance of the documents binds the buyer, but because the buyer’s own acceptance of the documents has severed the causal link between the newly discovered breach by the seller and the loss suffered by the buyer. In this case, the buyer may be able to recover damages from the buyer resulting from the physical breach concealed by the documents. If, on the other hand, the judgment in Kleinjan & Holst v Bremer Handels197 is

192 As well they might, if they have already put the bank in funds for the sum of the letter of credit. Where the buyer rejects the documents against the bank, they are then likely to reject the goods because they are in no position to claim possession of them from the carrier, having no bill of lading in hand: the bank is left out of pocket, to the tune of the sum of the credit paid to the seller; and the prospects for recovery by the bank from the seller, in the circumstances envisaged, are poor: see Professor Roy Goode ‘Reflections on Letters of Credit – III’ [1983] JBL 443. 193 If the banks accept conforming documents, the buyer is not, of course, estopped from later rejecting the goods; this is a direct result of the separate and independent existence of the rights to reject documents and goods: see Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep 440, at 445–6. 194 It is clear that this result follows whether or not the banks instructed under a letter of credit are, for the purposes of the contract of sale, agents for the buyer. This is a difficult question, upon which there is more opinion in the textbooks than there are decisions in the cases, possibly because, as the text above attempts to show, most ‘agency’-type questions can actually be solved through easier means. Such opinion as has been expressed, though, suggests that the banks do not act as agents for buyers when accepting or rejecting documents: see Goode Commercial Law (6th edn), at 35.58; Professor Roy Goode Documentary Letters of Credit (1970, University of Singapore Press), pp 66–7 and 151. 195 [1987] 1 Lloyd’s Rep 394. 196 [1972] 2 Lloyd’s Rep 11. 197 [1972] 2 Lloyd’s Rep 11.

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followed, then acceptance by the buyer through the bank of documents containing one patent defect and another concealed defect would not preclude the buyer from pursuing the buyer. Thus, in all three cases envisaged above, the doctrine in Panchaud198 bites, if at all, against the buyer personally; its application is in no sense affected by the parties’ use of a letter of credit as the method of payment under their contract of sale.

198 [1970] 1 Lloyd’s Rep 53.

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Appendix

Statutes

Sale of Goods Act 1979 Carriage of Goods by Sea Act 1971 Carriage of Goods by Sea Act 1992

275 309 320

SALE OF GOODS ACT 1979 (1979 CHAPTER 54) An Act to consolidate the law relating to the sale of goods. [6th December 1979]

Part I Contracts to Which Act Applies 1

Contracts to which Act applies.

(1)

This Act applies to contracts of sale of goods made on or after (but not to those made before) 1 January 1894.

(2)

In relation to contracts made on certain dates, this Act applies subject to the modification of certain of its sections as mentioned in Schedule 1 below.

(3)

Any such modification is indicated in the section concerned by a reference to Schedule 1 below.

(4)

Accordingly, where a section does not contain such a reference, this Act applies in relation to the contract concerned without such modification of the section.

[(5) Certain sections or subsections of this Act do not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies. (6)

Where that is the case it is indicated in the section concerned.]1 Amendment 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 9.

275

 Statutes

Part II Formation of the Contract Contract of sale 2

Contract of sale.

(1) A  contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. (2)

There may be a contract of sale between one part owner and another.

(3)

A contract of sale may be absolute or conditional.

(4) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale. (5)

Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell.

(6)

An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

3

Capacity to buy and sell.

(1)

Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property.

(2)

Where necessaries are sold and delivered [to a minor or]1 to a person who by reason of [mental incapacity or]2 drunkenness is incompetent to contract, he must pay a reasonable price for them.

(3)

In subsection (2) above ‘necessaries’ means goods suitable to the condition in life of the [minor or other]1 person concerned and to his actual requirements at the time of the sale and delivery. Amendments 1

Repealed in relation to Scotland by the Age of Legal Capacity (Scotland) Act 1991, s 10(2), Sch 2.

2

Repealed in relation to England and Wales by the Mental Capacity Act 2005, s 67(1), Sch 6, para 24.

Formalities of contract 4

How contract of sale is made.

(1)

Subject to this and any other Act, a contract of sale may be made in writing (either with or without seal), or by word of mouth, or partly in writing 276



Sale of Goods Act 1979



and partly by word of mouth, or may be implied from the conduct of the parties. (2)

Nothing in this section affects the law relating to corporations.

Subject matter of contract 5

Existing or future goods.

(1)

The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods.

(2)

There may be a contract for the sale of goods the acquisition of which by the seller depends on a contingency which may or may not happen.

(3)

Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

6

Goods which have perished.

Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. 7

Goods perishing before sale but after agreement to sell.

Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided. The price 8

Ascertainment of price.

(1)

The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties.

(2)

Where the price is not determined as mentioned in sub-section (1) above the buyer must pay a reasonable price.

(3) What is a reasonable price is a question of fact dependent on the circumstances of each particular case. 9

Agreement to sell at valuation.

(1)

Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of 277

 Statutes them have been delivered to and appropriated by the buyer he must pay a reasonable price for them. (2)

Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the party at fault.

[Implied terms etc.]1 10

Stipulations about time.

(1) Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not of the essence of a contract of sale. (2)

Whether any other stipulation as to time is or is not of the essence of the contract depends on the terms of the contract.

(3)

In a contract of sale ‘month’ prima facie means calendar month. Amendment 1

11

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (10). When condition to be treated as warranty.

[(1) This section does not apply to Scotland.]1 (2) Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. (3) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition, though called a warranty in the contract. (4)

[Subject to section 35A below]2 where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of a condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect.

[(4A) Subsection (4) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 19 to 22 of that Act).]3 278



Sale of Goods Act 1979



(5) …4 (6)

Nothing in this section affects a condition or warranty whose fulfilment is excused by law by reason of impossibility or otherwise.

(7) Paragraph  2 of Schedule  1 below applies in relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967. Amendments 1

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (2)(a).

2

Inserted by the Sale and Supply of Goods Act 1994, s 3(2).

3

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 10.

4

Repealed by the Sale and Supply of Goods Act 1994, s  7, Sch  2, para 5(1), (2)(b), Sch 3.

12

Implied terms about title, etc.

(1)

In a contract of sale, other than one to which subsection (3) below applies, there is an implied [term]1 on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass.

(2)

In a contract of sale, other than one to which subsection (3) below applies, there is also an implied [term]1 that— (a) the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made, and (b) the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known.

(3) This subsection applies to a contract of sale in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have. (4) In a contract to which subsection (3) above applies there is an implied [term]1 that all charges or encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the contract is made. (5)

In a contract to which subsection (3) above applies there is also an implied [term]1 that none of the following will disturb the buyer’s quiet possession of the goods, namely— (a) the seller; 279

 Statutes (b) in a case where the parties to the contract intend that the seller should transfer only such title as a third person may have, that person; (c) anyone claiming through or under the seller or that third person otherwise than under a charge or encumbrance disclosed or known to the buyer before the contract is made. [(5A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties.]2 (6) Paragraph  3 of Schedule  1 below applies in relation to a contract made before 18 May 1973. [(7) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 17 of that Act).]3 Amendments 1

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (3)(a).

2

Inserted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (3)(b).

3

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 11.

13

Sale by description.

(1)

Where there is a contract for the sale of goods by description, there is an implied [term]1 that the goods will correspond with the description.

[(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.]2 (2)

If the sale is by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

(3)

A sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer.

(4) Paragraph  4 of Schedule  1 below applies in relation to a contract made before 18 May 1973. [(5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 11 of that Act).]3 280



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Amendments 1

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (4)(a).

2

Inserted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (4)(b).

3

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 12.

14

Implied terms about quality or fitness.

(1)

Except as provided by this section and section 15 below and subject to any other enactment, there is no implied [term]1 about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

[(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality. (2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances. (2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods— (a) fitness for all the purposes for which goods of the kind in question are commonly supplied, (b) appearance and finish, (c) freedom from minor defects, (d) safety, and (e) durability. (2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory— (a) which is specifically drawn to the buyer’s attention before the contract is made, (b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or (c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.]2 [(2D) …3 (2E) …3 (2F) …3]4 (3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known— 281

 Statutes (a) (b)

to the seller, or where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the seller, to that credit-broker,

any particular purpose for which the goods are being bought, there is an implied [term]1 that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker. (4)

An implied [term]1 about quality or fitness for a particular purpose may be annexed to a contract of sale by usage.

(5)

The preceding provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.

[(6) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions.]5 (7) Paragraph  5 of Schedule  1 below applies in relation to a contract made on or after 18 May 1973 and before the appointed day, and paragraph 6 in relation to one made before 18 May 1973. (8)

In subsection (7) above and paragraph 5 of Schedule 1 below references to the appointed day are to the day appointed for the purposes of those provisions by an order of the Secretary of State made by statutory instrument.

[(9) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 9, 10 and 18 of that Act).]6 Amendments 1

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (5)(a).

2

Substituted by the Sale and Supply of Goods Act 1994, s 1(1).

3

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 13(1), (2).

4

Inserted by the Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045, reg 3. 282



Sale of Goods Act 1979 5

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (5)(b).

6

Inserted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 13(1), (3).



Sale by sample 15

Sale by sample.

(1)

A contract of sale is a contract for sale by sample where there is an express or implied term to that effect in the contract.

(2)

In the case of a contract for sale by sample there is an implied [term]1— (a) that the bulk will correspond with the sample in quality; (b) …2 (c) that the goods will be free from any defect, [making their quality unsatisfactory]3, which would not be apparent on reasonable examination of the sample.

[(3) As regards England and Wales and Northern Ireland, the term implied by subsection (2) above is a condition.]1 (4) Paragraph  7 of Schedule  1 below applies in relation to a contract made before 18 May 1973. [(5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 13 and 18 of that Act).]4 Amendments 1

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (6).

2

Repealed by the Sale and Supply of Goods Act 1994, s  7, Sch  2, para 5(1), (6)(a), Sch 3.

3

Substituted by the Sale and Supply of Goods Act 1994, s 1(2).

4

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 14.

[Miscellaneous 15A Modification of remedies for breach of condition in non-consumer cases. (1)

Where in the case of a contract of sale— 283

 Statutes (a) (b)

the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but the breach is so slight that it would be unreasonable for him to reject them,

…1 the breach is not to be treated as a breach of condition but may be treated as a breach of warranty. (2) This section applies unless a contrary intention appears in, or is to be implied from, the contract. (3)

It is for the seller to show that a breach fell within subsection (1)(b) above.

(4)

This section does not apply to Scotland.]2 Amendments 1

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 15.

2

Inserted by the Sale and Supply of Goods Act 1994, s 4(1).

[15B Remedies for breach of contract as respects Scotland. (1)

Where in a contract of sale the seller is in breach of any term of the contract (express or implied), the buyer shall be entitled— (a) to claim damages, and (b) if the breach is material, to reject any goods delivered under the contract and treat it as repudiated.

[(1A) Subsection (1) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 19 to 22 of that Act).]1 (2) …2 (3)

This section applies to Scotland only.]3 Amendments 1

Inserted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 16(1), (2).

2

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 16(1), (3).

3

Inserted by the Sale and Supply of Goods Act 1994, s 5(1).

284



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Part III Effects of the Contract Transfer of property as between seller and buyer 16

Goods must be ascertained.

[Subject to section 20A below]1 where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Amendment 1

Inserted by the Sale of Goods (Amendment) Act 1995, s 1(1).

17

Property passes when intended to pass.

(1)

Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. 18

Rules for ascertaining intention.

Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Rule 1.—Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed. Rule 2.—Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done. Rule 3.—Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until the act or thing is done and the buyer has notice that it has been done. Rule 4.—When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer:— (a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction; 285

 Statutes (b)

if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.

Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made. (2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract. [(3) Where there is a contract for the sale of a specified quantity of unascertained goods in a deliverable state forming part of a bulk which is identified either in the contract or by subsequent agreement between the parties and the bulk is reduced to (or to less than) that quantity, then, if the buyer under that contract is the only buyer to whom goods are then due out of the bulk— (a) the remaining goods are to be taken as appropriated to that contract at the time when the bulk is so reduced; and (b) the property in those goods then passes to that buyer. (4) Paragraph  (3) above applies also (with the necessary modifications) where a bulk is reduced to (or to less than) the aggregate of the quantities due to a single buyer under separate contracts relating to that bulk and he is the only buyer to whom goods are then due out of that bulk.]1 Amendment 1

Inserted by the Sale of Goods (Amendment) Act 1995, s 1(2).

19

Reservation of right of disposal.

(1)

Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding 286



Sale of Goods Act 1979



the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2)

Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal.

(3)

Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him.

20

[Passing of risk.]1

(1) Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not. (2)

But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.

(3) Nothing in this section affects the duties or liabilities of either seller or buyer as a bailee or custodier of the goods of the other party. [[(4) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act).]2]3 Amendments 1

Substituted by the Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045, reg 4(1).

2

Substituted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 17(1).

3

Inserted by the Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045, reg 4(1), (2).

[20A Undivided shares in goods forming part of a bulk. (1) This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met— 287

 Statutes (a) (b) (2)

the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and the buyer has paid the price for some or all of the goods which are the subject of the contract and which form part of the bulk.

Where this section applies, then (unless the parties agree otherwise), as soon as the conditions specified in paragraphs (a) and (b) of subsection (1) above are met or at such later time as the parties may agree— (a) property in an undivided share in the bulk is transferred to the buyer, and (b) the buyer becomes an owner in common of the bulk.

(3) Subject to subsection (4) below, for the purposes of this section, the undivided share of a buyer in a bulk at any time shall be such share as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time. (4)

Where the aggregate of the undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk.

(5)

Where a buyer has paid the price for only some of the goods due to him out of a bulk, any delivery to the buyer out of the bulk shall, for the purposes of this section, be ascribed in the first place to the goods in respect of which payment has been made.

(6)

For the purposes of this section payment of part of the price for any goods shall be treated as payment for a corresponding part of the goods.]1 Amendment 1

Inserted by the Sale of Goods (Amendment) Act 1995, s 1(3).

[20B Deemed consent by co-owner to dealings in bulk goods. (1)

A person who has become an owner in common of a bulk by virtue of section 20A above shall be deemed to have consented to— (a) any delivery of goods out of the bulk to any other owner in common of the bulk, being goods which are due to him under his contract; (b) any dealing with or removal, delivery or disposal of goods in the bulk by any other person who is an owner in common of the bulk in so far as the goods fall within that co-owner’s undivided share in the bulk at the time of the dealing, removal, delivery or disposal.

(2)

No cause of action shall accrue to anyone against a person by reason of that person having acted in accordance with paragraph (a) or (b) of subsection 288



Sale of Goods Act 1979



(1) above in reliance on any consent deemed to have been given under that subsection. (3)

Nothing in this section or section 20A above shall— (a) impose an obligation on a buyer of goods out of a bulk to compensate any other buyer of goods out of that bulk for any shortfall in the goods received by that other buyer; (b) affect any contractual arrangement between buyers of goods out of a bulk for adjustments between themselves; or (c) affect the rights of any buyer under his contract.]1 Amendment 1

Inserted by the Sale of Goods (Amendment) Act 1995, s 1(3).

Transfer of title 21

Sale by person not the owner.

(1)

Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.

(2)

Nothing in this Act affects— (a) the provisions of the Factors Acts or any enactment enabling the apparent owner of goods to dispose of them as if he were their true owner; (b) the validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction.

22

Market overt.

(1) …1 (2)

This section does not apply to Scotland.

(3) Paragraph  8 of Schedule  1 below applies in relation to a contract under which goods were sold before 1 January 1968 or (in the application of this Act to Northern Ireland) 29 August 1967. Amendment 1

Repealed by the Sale of Goods (Amendment) Act 1994, s 1, 3(3) (with s. 3(2)). 289

 Statutes 23

Sale under voidable title.

When the seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title. 24

Seller in possession after sale.

Where a person having sold goods continues or is in possession of the goods, or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same. 25

Buyer in possession after sale.

(1)

Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.

(2)

For the purposes of subsection (1) above— (a) the buyer under a conditional sale agreement is to be taken not to be a person who has bought or agreed to buy goods, and (b) ‘conditional sale agreement’ means an agreement for the sale of goods which is a consumer credit agreement within the meaning of the Consumer Credit Act 1974 under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled.

(3) Paragraph  9 of Schedule  1 below applies in relation to a contract under which a person buys or agrees to buy goods and which is made before the appointed day. (4)

In subsection (3) above and paragraph 9 of Schedule 1 below references to the appointed day are to the day appointed for the purposes of those provisions by an order of the Secretary of State made by statutory instrument. 290

26

Sale of Goods Act 1979



Supplementary to sections 24 and 25.

In sections 24 and 25 above ‘mercantile agent’ means a mercantile agent having in the customary course of his business as such agent authority either— (a) to sell goods, or (b) to consign goods for the purpose of sale, or (c) to buy goods, or (d) to raise money on the security of goods.

Part IV Performance of the Contract 27

Duties of seller and buyer.

It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. 28

Payment and delivery are concurrent conditions.

Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods. 29

Rules about delivery.

(1)

Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties.

(2)

Apart from any such contract, express or implied, the place of delivery is the seller’s place of business if he has one, and if not, his residence; except that, if the contract is for the sale of specific goods, which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery.

(3)

Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

[(3A) Subsection (3) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 28 of that Act).]1 (4)

Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods.

(5)

Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour; and what is a reasonable hour is a question of fact. 291

 Statutes (6) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller. Amendment 1 30

inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 18. Delivery of wrong quantity.

(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate. (2)

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.

[(2A) A buyer …1 may not— (a) where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above, or (b) where the seller delivers a quantity of goods larger than he contracted to sell, reject the whole under subsection (2) above, if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so. (2B) It is for the seller to show that a shortfall or excess fell within subsection (2A) above. (2C) Subsections (2A) and (2B) above do not apply to Scotland.]2 [(2D) Where the seller delivers a quantity of goods— (a) less than he contracted to sell, the buyer shall not be entitled to reject the goods under subsection (1) above, (b) larger than he contracted to sell, the buyer shall not be entitled to reject the whole under subsection (2) above, unless the shortfall or excess is material. (2E) Subsection (2D) above applies to Scotland only.]3 (3)

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.

(4) …4 (5)

This section is subject to any usage of trade, special agreement, or course of dealing between the parties.

[(6) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 25 of that Act).]5 292



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Amendments 1

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 19(1), (2).

2

Inserted by the Sale and Supply of Goods Act 1994, s 4(2).

3

Inserted by the Sale and Supply of Goods Act 1994, s 5(2).

4

Repealed by the Sale and Supply of Goods Act 1994, ss 3(3), 7(2), Sch 3.

5

Inserted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 19(1), (3).

31

Instalment deliveries.

(1)

Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments.

(2)

Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated.

[(3) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 26 of that Act).]1 Amendment 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 20.

32

Delivery to carrier.

(1)

Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer.

(2)

Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages. 293

 Statutes (3)

Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea transit.

[(4) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act).]1 Amendment 1

33

Substituted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 21. Risk where goods are delivered at distant place.

[(1)]1 Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer must nevertheless (unless otherwise agreed) take any risk of deterioration in the goods necessarily incident to the course of transit. [(2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act).]1 Amendments 1 34

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 22. Buyer’s right of examining the goods.

[(1)] …2 unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract [and, in the case of a contract for sale by sample, of comparing the bulk with the sample.]3 1

[(2) Nothing in this section affects the operation of section 22 (time limit for short-term right to reject) of the Consumer Rights Act 2015.]1 Amendments 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 23.

2

Repealed by the Sale and Supply of Goods Act 1994, s 2(2)(a), 7(2), Sch 3.

3

Inserted by the Sale and Supply of Goods Act 1994, s 2(2)(b).

294



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35 Acceptance. (1)

The buyer is deemed to have accepted the goods [subject to subsection (2) below— (a) when he intimates to the seller that he has accepted them, or (b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

(2)

Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose— (a) of ascertaining whether they are in conformity with the contract, and (b) in the case of a contract for sale by sample, of comparing the bulk with the sample.

(3) …1 (4)

The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above. (6) The buyer is not by virtue of this section deemed to have accepted the goods merely because— (a) he asks for, or agrees to, their repair by or under an arrangement with the seller, or (b) the goods are delivered to another under a sub-sale or other disposition. (7)

Where the contract is for the sale of goods making one or more commercial units, a buyer accepting any goods included in a unit is deemed to have accepted all the goods making the unit; and in this subsection ‘commercial unit’ means a unit division of which would materially impair the value of the goods or the character of the unit.

(8)]2 Paragraph 10 of Schedule 1 below applies in relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967. [(9) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 21 of that Act).]3 295

 Statutes Amendments 1

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 24(1), (2).

2

Substituted by the Sale and Supply of Goods Act 1994, s 2(1).

3

Inserted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 24(1), (3).

[35A Right of partial rejection. (1)

If the buyer— (a) has the right to reject the goods by reason of a breach on the part of the seller that affects some or all of them, but (b) accepts some of the goods, including, where there are any goods unaffected by the breach, all such goods, he does not by accepting them lose his right to reject the rest.

(2)

In the case of a buyer having the right to reject an instalment of goods, subsection (1) above applies as if references to the goods were references to the goods comprised in the instalment.

(3)

For the purposes of subsection (1) above, goods are affected by a breach if by reason of the breach they are not in conformity with the contract.

(4) This section applies unless a contrary intention appears in, or is to be implied from, the contract. [(5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 21 of that Act).]1]2 Amendments

36

1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 25.

2

Inserted by the Sale and Supply of Goods Act 1994, s 3(1). Buyer not bound to return rejected goods.

[(1)]1 Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them. [(2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 20 of that Act).]1 296



Sale of Goods Act 1979



Amendments 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 26.

37

Buyer’s liability for not taking delivery of goods.

(1)

When the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.

(2) Nothing in this section affects the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

Part V Rights of Unpaid Seller Against the Goods Preliminary 38

Unpaid seller defined.

(1)

The seller of goods is an unpaid seller within the meaning of this Act— (a) when the whole of the price has not been paid or tendered; (b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

(2)

In this Part of this Act ‘seller’ includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid (or is directly responsible for) the price.

39

Unpaid seller’s rights.

(1)

Subject to this and any other Act, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law— (a) a lien on the goods or right to retain them for the price while he is in possession of them; (b) in case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them; (c) a right of re-sale as limited by this Act.

(2)

Where the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other remedies) a right of withholding delivery similar to and co-extensive with his rights of lien or retention and stoppage in transit where the property has passed to the buyer. 297

 Statutes 40 …1 …1 Amendment 1

Repealed by the Debtors (Scotland) Act 1987, s 108(3), Sch 8.

Unpaid seller’s lien 41 Seller’s lien. (1)

Subject to this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases:— (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit but the term of credit has expired; (c) where the buyer becomes insolvent.

(2)

The seller may exercise his lien or right of retention notwithstanding that he is in possession of the goods as agent or bailee or custodier for the buyer.

42

Part delivery.

Where an unpaid seller has made part delivery of the goods, he may exercise his lien or right of retention on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien or right of retention. 43

Termination of lien.

(1)

The unpaid seller of goods loses his lien or right of retention in respect of them— (a) when he delivers the goods to a carrier or other bailee or custodier for the purpose of transmission to the buyer without reserving the right of disposal of the goods; (b) when the buyer or his agent lawfully obtains possession of the goods; (c) by waiver of the lien or right of retention.

(2)

An unpaid seller of goods who has a lien or right of retention in respect of them does not lose his lien or right of retention by reason only that he has obtained judgment or decree for the price of the goods.

Stoppage in transit 44

Right of stoppage in transit.

Subject to this Act, when the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping 298



Sale of Goods Act 1979



them in transit, that is to say, he may resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price. 45

Duration of transit.

(1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee or custodier for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from the carrier or other bailee or custodier. (2)

If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.

(3)

If, after the arrival of the goods at the appointed destination, the carrier or other bailee or custodier acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee or custodier for the buyer or his agent, the transit is at an end, and it is immaterial that a further destination for the goods may have been indicated by the buyer.

(4)

If the goods are rejected by the buyer, and the carrier or other bailee or custodier continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.

(5)

When goods are delivered to a ship chartered by the buyer it is a question depending on the circumstances of the particular case whether they are in the possession of the master as a carrier or as agent to the buyer.

(6)

Where the carrier or other bailee or custodier wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end.

(7)

Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods.

46

How stoppage in transit is effected.

(1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods or by giving notice of his claim to the carrier or other bailee or custodier in whose possession the goods are. (2)

The notice may be given either to the person in actual possession of the goods or to his principal.

(3) If given to the principal, the notice is ineffective unless given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer. 299

 Statutes (4)

When notice of stoppage in transit is given by the seller to the carrier or other bailee or custodier in possession of the goods, he must re-deliver the goods to, or according to the directions of, the seller; and the expenses of the re-delivery must be borne by the seller.

Re-sale etc. by buyer 47

Effect of sub-sale etc. by buyer.

(1)

Subject to this Act, the unpaid seller’s right of lien or retention or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented to it.

(2) Where a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who take it in good faith and for valuable consideration, then— (a) if the last-mentioned transfer was by way of sale the unpaid seller’s right of lien or retention or stoppage in transit is defeated; and (b) if the last-mentioned transfer was made by way of pledge or other disposition for value, the unpaid seller’s right of lien or retention or stoppage in transit can only be exercised subject to the rights of the transferee. Rescission: and re-sale by seller 48

Rescission: and re-sale by seller.

(1) Subject to this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or retention or stoppage in transit. (2)

Where an unpaid seller who has exercised his right of lien or retention or stoppage in transit re-sells the goods, the buyer acquires a good title to them as against the original buyer.

(3)

Where the goods are of a perishable nature, or where the unpaid seller gives notice to the buyer of his intention to re-sell, and the buyer does not within a reasonable time pay or tender the price, the unpaid seller may re-sell the goods and recover from the original buyer damages for any loss occasioned by his breach of contract.

(4)

Where the seller expressly reserves the right of re-sale in case the buyer should make default, and on the buyer making default re-sells the goods, the original contract of sale is rescinded but without prejudice to any claim the seller may have for damages.

300



Sale of Goods Act 1979



[Part 5A …1]2 Amendments 1

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 27.

2

Inserted by the Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045, reg 5.

Part VI Actions for Breach of the Contract Seller’s remedies 49

Action for price.

(1)

Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.

(2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract. (3) Nothing in this section prejudices the right of the seller in Scotland to recover interest on the price from the date of tender of the goods, or from the date on which the price was payable, as the case may be. 50

Damages for non-acceptance.

(1)

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance.

(2)

The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

(3)

Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.

301

 Statutes Buyer’s remedies 51

Damages for non-delivery.

(1)

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.

(2)

The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.

(3)

Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.

[(4) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act).]1 Amendment 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 28.

52

Specific performance.

(1)

In any action for breach of contract to deliver specific or ascertained goods the court may, if it thinks fit, on the plaintiff’s application, by its judgment or decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages.

(2) The plaintiff’s application may be made at any time before judgment or decree. (3) The judgment or decree may be unconditional, or on such terms and conditions as to damages, payment of the price and otherwise as seem just to the court. (4)

The provisions of this section shall be deemed to be supplementary to, and not in derogation of, the right of specific implement in Scotland.

[(5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act).]1 Amendment 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 29. 302



Sale of Goods Act 1979



53

Remedy for breach of warranty.

(1)

Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may— (a) set up against the seller the breach of warranty in diminution or extinction of the price, or (b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. (3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty. (4)

The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.

[(4A) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act).]1 [(5) This section does not apply to Scotland.]2 Amendments 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 30.

2

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (7).

[53A Measure of damages as respects Scotland. (1)

The measure of damages for the seller’s breach of contract is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach.

(2)

Where the seller’s breach consists of the delivery of goods which are not of the quality required by the contract and the buyer retains the goods, such loss as aforesaid is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the contract. 303

 Statutes [(2A) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act).]1 (3)

This section applies to Scotland only.]2 Amendments 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 31.

2

Inserted by the Sale and Supply of Goods Act 1994, s 5(3).

Interest, etc. 54 Interest, etc. [(1)]1 Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed. [(2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act).]1 Amendments 1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 32.

Part VII Supplementary 55

Exclusion of implied terms.

(1)

Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may (subject to the Unfair Contract Terms Act 1977) be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract.

[(1A) Subsection (1) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 31 of that Act).]1 (2)

An express [term]2 does not negative a [term]2 implied by this Act unless inconsistent with it.

(3)

Paragraph 11 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, and paragraph 12 in relation to one made before 18 May 1973. 304



Sale of Goods Act 1979



Amendments

56

1

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 33.

2

Substituted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (8). Conflict of laws.

Paragraph 13 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, so as to make provision about conflict of laws in relation to such a contract. 57

Auction sales.

(1)

Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.

(2)

A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.

(3)

A sale by auction may be notified to be subject to a reserve or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller.

(4)

Where a sale by auction is not notified to be subject to a right to bid by or on behalf of the seller, it is not lawful for the seller to bid himself or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person.

(5)

A sale contravening subsection (4) above may be treated as fraudulent by the buyer.

(6)

Where, in respect of a sale by auction, a right to bid is expressly reserved (but not otherwise) the seller or any one person on his behalf may bid at the auction.

58

Payment into court in Scotland.

[(1)]1 In Scotland where a buyer has elected to accept goods which he might have rejected, and to treat a breach of contract as only giving rise to a claim for damages, he may, in an action by the seller for the price, be required, in the discretion of the court before which the action depends, to consign or pay into court the price of the goods, or part of the price, or to give other reasonable security for its due payment. [(2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 27 of that Act).]1 305

 Statutes Amendments 1 59

Inserted by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 34. Reasonable time a question of fact.

Where a reference is made in this Act to a reasonable time the question what is a reasonable time is a question of fact. 60

Rights etc. enforceable by action.

Where a right, duty or liability is declared by this Act, it may (unless otherwise provided by this Act) be enforced by action. 61 Interpretation. (1)

In this Act, unless the context or subject matter otherwise requires,— ‘action’ includes counterclaim and set-off, and in Scotland condescendence and claim and compensation; [‘bulk’ means a mass or collection of goods of the same kind which— (a) is contained in a defined space or area; and (b) is such that any goods in the bulk are interchangeable with any other goods therein of the same number or quantity;]1 ‘business’ includes a profession and the activities of any government department (including a Northern Ireland department) or local or public authority; ‘buyer’ means a person who buys or agrees to buy goods; […2]3 ‘contract of sale’ includes an agreement to sell as well as a sale; ‘credit-broker’ means a person acting in the course of a business of credit brokerage carried on by him, that is a business of effecting introductions of individuals desiring to obtain credit— (a) to persons carrying on any business so far as it relates to the provision of credit, or (b) to other persons engaged in credit brokerage; ‘defendant’ includes in Scotland defender, respondent, and claimant in a multiplepoinding; ‘delivery’ means voluntary transfer of possession from one person to another [except that in relation to sections 20A and 20B above it includes such appropriation of goods to the contract as results in property in the goods being transferred to the buyer;]1 ‘document of title to goods’ has the same meaning as it has in the Factors Acts; 306



Sale of Goods Act 1979



‘Factors Acts’ means the Factors Act 1889, the Factors (Scotland) 1890, and any enactment amending or substituted for the same; ‘fault’ means wrongful act or default; ‘future goods’ means goods to be manufactured or acquired by the seller after the making of the contract of sale; ‘goods’ includes all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular ‘goods’ includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [and includes an undivided share in goods;]1 ‘plaintiff’ includes pursuer, complainer, claimant in a multiplepoinding and defendant or defender counter-claiming; …2 ‘property’ means the general property in goods, and not merely a special property; …2 …4 ‘sale’ includes a bargain and sale as well as a sale and delivery; ‘seller’ means a person who sells or agrees to sell goods; ‘specific goods’ means goods identified and agreed on at the time a contract of sale is made [and includes an undivided share, specified as a fraction or percentage, of goods identified and agreed on as aforesaid]1; ‘warranty’ (as regards England and Wales and Northern Ireland) means an agreement with reference to goods which are the subject of a contract of sale, but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated. (2) …4 (3)

A thing is deemed to be done in good faith within the meaning of this Act when it is in fact done honestly, whether it is done negligently or not.

(4)

A person is deemed to be insolvent within the meaning of this Act if he has either ceased to pay his debts in the ordinary course of business or he cannot pay his debts as they become due …5.

(5)

Goods are in a deliverable state within the meaning of this Act when they are in such a state that the buyer would under the contract be bound to take delivery of them.

[(5A) …2]3 307

 Statutes (6)

As regards the definition of ‘business’ in subsection (1) above, paragraph 14 of Schedule  1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, and paragraph 15 in relation to one made before 18 May 1973. Amendments 1

Inserted by the Sale of Goods (Amendment) Act 1995, s 2.

2

Repealed by the Consumer Rights Act 2015, s 60, Sch 1, paras 8, 35.

3

Inserted by the Sale and Supply of Goods Act 1994, s 7(1), Sch 2, para 5(1), (9)(a)(i), (c).

4

Repealed by the Sale and Supply of Goods Act 1994, s  7, Sch  2, para 5(1), (9)(a)(ii), (b), Sch 3.

5

Repealed by the Insolvency Act 1985, s 235(3), Sch 10, Pt III.

62

Savings: rules of law etc.

(1)

The rules in bankruptcy relating to contracts of sale apply to those contracts, notwithstanding anything in this Act.

(2)

The rules of the common law, including the law merchant, except in so far as they are inconsistent with the provisions of [legislation including this Act and the Consumer Rights Act 2015]1, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, apply to contracts for the sale of goods.

(3) Nothing in this Act or the Sale of Goods 1893 affects the enactments relating to bills of sale, or any enactment relating to the sale of goods which is not expressly repealed or amended by this Act or that. (4) The provisions of this Act about contracts of sale do not apply to a transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge, or other security. (5)

Nothing in this Act prejudices or affects the landlord’s right of hypothec …2 in Scotland. Amendments 1

Substituted by the Consumer Rights Act 2015, s  60, Sch  1, paras 8, 36.

2

Repealed by the Bankruptcy and Diligence etc. (Scotland) Act 2007, s 226(2), Sch 6, Pt 1. 308

63

Carriage of Goods by Sea Act 1971



Consequential amendments, repeals and savings.

(1) Without prejudice to section 17 of the Interpretation Act 1978 (repeal and re-enactment), the enactments mentioned in Schedule  2 below have effect subject to the amendments there specified (being amendments consequential on this Act). (2)

The enactments mentioned in Schedule 3 below are repealed to the extent specified in column 3, but subject to the savings in Schedule 4 below.

(3)

The savings in Schedule 4 below have effect.

64

Short title and commencement.

(1)

This Act may be cited as the Sale of Goods Act 1979.

(2)

This Act comes into force on 1 January 1980.

Schedules 1 to 4 are not reproduced CARRIAGE OF GOODS BY SEA ACT 1971 (1971 CHAPTER 19) An Act to amend the law with respect to the carriage of goods by sea. [8th April 1971] 1

Application of Hague Rules as amended.

(1) In this Act, ‘the Rules’ means the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25th August 1924, as amended by the Protocol signed at Brussels on 23rd February 1968 [and by the Protocol signed at Brusels on 21st December 1979]1. (2)

The provisions of the Rules, as set out in the Schedule to this Act, shall have the force of law.

(3)

Without prejudice to subsection (2) above, the said provisions shall have effect (and have the force of law) in relation to and in connection with the carriage of goods by sea in ships where the port of shipment is a port in the United Kingdom, whether or not the carriage is between ports in two different States within the meaning of Article X of the Rules.

(4)

Subject to subsection (6) below, nothing in this section shall be taken as applying anything in the Rules to any contract for the carriage of goods by sea, unless the contract expressly or by implication provides for the issue of a bill of lading or any similar document of title.

(5) …1 309

 Statutes (6) Without prejudice to Article X(c) of the Rules, the Rules shall have the force of law in relation to— (a) any bill of lading if the contract contained in or evidenced by it expressly provides that the Rules shall govern the contract, and (b) any receipt which is a non-negotiable document marked as such if the contract contained in or evidenced by it is a contract for the carriage of goods by sea which expressly provides that the Rules are to govern the contract as if the receipt were a bill of lading, but subject, where paragraph (b) applies, to any necessary modifications and in particular with the omission in Article III of the Rules of the second sentence of paragraph 4 and of paragraph 7. (7)

If and so far as the contract contained in or evidenced by a bill of lading or receipt within paragraph (a) or (b) of subsection (6) above applies to deck cargo or live animals, the Rules as given the force of law by that subsection shall have effect as if Article I(c) did not exclude deck cargo and live animals. In this subsection ‘deck cargo’ means cargo which by the contract of carriage is stated as being carried on deck and is so carried. Amendments 1

Inserted by the Merchant Shipping Act 1981, s 2(1).

2

Repealed by the Merchant Shipping Act 1981, s 5(3), Schedule.

[1A Conversion of special drawing rights into sterling. (1)

For the purposes of Article IV of the Rules the value on a particular day of one special drawing right shall be treated as equal to such a sum in sterling as the International Monetary Fund have fixed as being the equivalent of one special drawing right— (a) for that day; or (b) if no sum has been so fixed for that day, for the last day before that day for which a sum has been so fixed.

(2)

A certificate given by or on behalf of the Treasury stating— (a) that a particular sum in sterling has been fixed as aforesaid for a particular day; or (b) that no sum has been so fixed for a particular day and that a particular sum in sterling has been so fixed for a day which is the last day for which a sum has been so fixed before the particular day, shall be conclusive evidence of those matters for the purposes of subsection (1) above; and a document purporting to be such a certificate shall in any proceedings be received in evidence and, unless the contrary is proved, be deemed to be such a certificate. 310



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(3) The Treasury may charge a reasonable fee for any certificate given in pursuance of subsection (2) above, and any fee received by the Treasury by virtue of this subsection shall be paid into the Consolidated Fund.]1 Amendments 1

Inserted by the Merchant Shipping Act 1995, s  314(2), Sch  13, para 45(1), (3).

2

Contracting States, etc.

(1)

If Her Majesty by Order in Council certified to the following effect, that is to say, that for the purposes of the Rules— (a) a State specified in the Order is a contracting State, or is a contracting State in respect of any place or territory so specified; or (b) any place or territory specified in the Order forms part of a State so specified (whether a contracting State or not), the Order shall, except so far as it has been superseded by a subsequent Order, be conclusive evidence of the matters so certified.

(2) An Order in Council under this Section may be varied or revoked by a subsequent Order in Council. 3 Absolute warranty of seaworthiness not to be implied in contracts to which Rules apply. There shall not be implied in any contract for the carriage of goods by sea to which the Rules apply by virtue of this Act any absolute undertaking by the carrier of the goods to provide a seaworthy ship. 4

Application of Act to British possessions, etc.

(1) Her Majesty may by Order in Council direct that this Act shall extend, subject to such exceptions, adaptations and modifications as may be specified in the Order, to all or any of the following territories, that is— (a) any colony (not being a colony for whose external relations a country other than the United Kingdom is responsible), (b) any country outside Her Majesty’s dominions in which Her Majesty has jurisdiction in right of Her Majesty’s Government of the United Kingdom. (2)

An Order in Council under this section may contain such transitional and other consequential and incidental provisions as appear to Her Majesty to be expedient, including provisions amending or repealing any legislation about the carriage of goods by sea forming part of the law of any of the territories mentioned in paragraphs (a) and (b) above.

(3) An Order in Council under this Section may be varied or revoked by a subsequent Order in Council. 311

 Statutes 5 Extension of application of Rules to carriage from ports in British possessions, etc. (1)

Her Majesty may by Order in Council provide that section 1(3) of this Act shall have effect as if the reference therein to the United Kingdom included a reference to all or any of the following territories, that is— (a) the Isle of Man; (b) any of the Channel Islands specified in the Order; (c) any colony specified in the Order (not being a colony for whose external relations a country other than the United Kingdom is responsible); (d) …1 (e) any country specified in the Order, being a country outside Her Majesty’s dominions in which Her Majesty has jurisdiction in right of Her Majesty’s Government of the United Kingdom.

(2) An Order in Council under this section may be varied or revoked by a subsequent Order in Council. Amendment 1

Repealed by the Statute Law (Repeals) Act 1989, s 1(1), Sch 1, Pt VI.

6 Supplemental. (1)

This Act may be cited as the Carriage of Goods by Sea Act 1971.

(2)

It is hereby declared that this Act extends to Northern Ireland.

(3)

The following enactments shall be repealed, that is— (a) the Carriage of Goods by Sea Act 1924, (b) section 12(4)(a) of the Nuclear Installations Act 1965, and without prejudice to section [17(2)(a) of the Interpretation Act 1978]1, the reference to the said Act of 1924 in section 1(1)(i)(ii) of the Hovercraft Act 1968 shall include a reference to this Act.

[(4) It is hereby declared that for the purposes of Article VIII of the Rules section 186 of the Merchant Shipping Act 1995 (which entirely exempts shipowners and others in certain circumstances for loss of, or damage to, goods) is a provision relating to limitation of liability.]2 (5)

This Act shall come into force on such day as Her Majesty may by Order in Council appoint, and, for the purposes of the transition from the law in force immediately before the day appointed under this subsection to the provisions of this Act, the Order appointing the day may provide that those provisions shall have effect subject to such transitional provisions as may be contained in the Order. 312



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Amendments 1

Substituted by the Interpretation Act 1978, s 25(2).

2

Substituted by the Merchant Shipping Act 1995, s 314(2), Sch 13, para 45(1), (4).

Schedule The Hague Rules as amended by the Brussels Protocol 1968 Article I In these Rules the following words are employed, with the meanings set out below:— (a) ‘Carrier’ includes the owner or the charterer who enters into a contract of carriage with a shipper. (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 carraige of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party 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. (c) ‘Goods’ includes goods, wares, merchandise, and articles of every kind whatsoever except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried. (d) ‘Ship’ means any vessel used for the carriage of goods by sea. (e) ‘Carriage of goods’ covers the period from the time when the goods are loaded on to the time they are discharged from the ship. Article II Subject to the provisions of Article VI, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth. Article III 1

The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to— (a) Make the ship seaworthy. (b) Properly man, equip and supply the ship. (c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. 313

 Statutes 2

Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

3

After receiving the goods into his charge the carrier or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things— (a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage. (b) Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper. (c) The apparent order and condition of the goods. Provided that no carrier, master or agent of the carrier shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of checking.

4

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.

5

The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper.

6

Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection. 314



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Subject to paragraph  6bis the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered. This period may, however, be extended if the parties so agree after the cause of action has arisen. In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. 6bis An action for indemnity against a third person may be brought even after the expiration of the year provided for in the preceding paragraph if brought within the time allowed by the law of the Court seized of the case. However, the time allowed shall be not less than three months, commencing from the day when the person bringing such action for indemnity has settled the claim or has been served with process in the action against himself. 7

After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier, to the shipper shall, if the shipper so demands, be a ‘shipped’ bill of lading, provided that if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the ‘shipped’ bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted, if it shows the particulars mentioned in paragraph 3 of Article III, shall for the purpose of this article be deemed to constitute a ‘shipped’ bill of lading.

8

Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship 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 null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.

Article IV 1

Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provisions of paragraph 1of Article III. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article. 315

 Statutes 2

Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from— (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship. (b) Fire, unless caused by the actual fault or privity of the carrier. (c) Perils, dangers and accidents of the sea or other navigable waters. (d) Act of God. (e) Act of war. (f) Act of public enemies. (g) Arrest or restraint of princes, rulers or perople, or seizure under legal process. (h) Quarantine restrictions. (i) Act or omission of the shipper or owner of the goods, his agent or representative. (j) Strikes or lockouts or stoppage or restraint of labour from whatever cause, whether partial or general. (k) Riots and civil commotions. (l) Saving or attempting to save life or property at sea. (m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods. (n) Insufficiency of packing. (o) Insufficiency or inadequacy of marks. (p) Latent defects not discoverable by due diligence. (q) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

3

The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or his servants.

4

Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom.

5 (a)

Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding [666.67 units of account]1 per package or unit or [2 units of account per kilogramme]1 of gross weight of the goods lost or damaged, whichever is the higher. 316



Carriage of Goods by Sea Act 1971



(b)

The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged. The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality. (c) Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit. [(d) The unit of acount mentioned in this Article is the special drawing right as defined by the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this paragraph shall be converted into national currency on the basis of the value of that currency on a date to be determined by the law of the Court seized of the case]1. (e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result. (f) The declaration mentioned in sub-paragraph (a) of this paragraph, if embodied in the bill of lading, shall be prima facie evidence, but shall not be binding or conclusive on the carrier. (g) By agreement between the carrier, master or agent of the carrier and the shipper other maximum amounts than those mentioned in sub-paragraph (a) of this paragraph may be fixed, provided that no maximum amount so fixed shall be less than the appropriate maximum mentioned in that sub-paragraph. (h) Neither the carrier nor the ship shall be responsible in any event for loss or damage to, or in connection with, goods if the nature or value thereof has been knowingly mis-stated by the shipper in the bill of lading. 6

Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place, or destroyed or rendered innoculous by the carrier without compensation and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and 317

 Statutes consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any. Amendments 1

Substituted by the Merchant Shipping Act 1981, s 2(3), (4).

Article IV bis 1

The defences and limits of liability provided for in these Rules shall apply in any action against the carrier in respect of loss or damage to goods covered by a contract of carriage whether the action be founded in contract or in tort.

2

If such an action is brought against a servant or agent of the carrier (such servant or agent not being an independent contractor), such servant or agent shall be entitled to avail himself of the defences and limits of liability which the carrier is entitled to invoke under these Rules.

3

The aggregate of the amounts recoverable from the carrier, and such servants and agents, shall in no case exceed the limit provided for in these Rules.

4

Nevertheless, a servant or agent of the carrier shall not be entitled to avail himself of the provisions of this article, if it is proved that the damage resulted from an act or omission of the servant or agent done with intent to cause damage or recklessly and with knowledge that damage would probably result.

Article V A  carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and obligations under these Rules, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. The provisions of these Rules shall not be applicable to charter parties, but if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of these Rules. Nothing in these Rules shall be held to prevent the insertion in a bill of lading of any lawful provision regarding general average. 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 for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness, so far as this stipulation is not contrary to public policy, or the care or diligence of his servants or agents in 318



Carriage of Goods by Sea Act 1971



regard to the loading, handling, stowage, carriage, custody, care and discharge of the goods carried by sea, 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. Article VII Nothing herein contained shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsbility and liability of the carrier or the ship for the loss or damage to, or in connection with, the custody and care and handling of goods prior to the loading on, and subsequent to the discharge from, the ship on which the goods are carried by sea. Article VIII The provisions of these Rules shall not affect the rights and obligations of the carrier under any statute for the time being in force relating to the limitation of the liability of owners of sea-going vessels. Article IX These Rules shall not affect the provisions of any international Convention or national law governing liability for nuclear damage. Article X The provisions of these Rules shall apply to every bill of lading relating to the carriage of goods between ports in two different States if: (a) the bill of lading is issued in a contracting State, or (b) the carriage is from a port in a contracting State, or (c) the contract contained in or evidenced by the bill of lading provides that these Rules or legislation of any State giving effect to them are to govern the contract, whatever may be the nationality of the ship, the carrier, the shipper, the consignee, or any other interested person. [The last two paragraphs of this article are not reproduced. They require contracting States to apply the Rules to bills of lading mentioned in the article and authorise them to apply the Rules to other bills of lading.] [Articles 11 to 16 of the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25th August 1924 are not reproduced. They deal with the coming into force of the Convention, 319

 Statutes procedure for ratification, accession and denunciation, and the right to call for a fresh conference to consider amendments to the Rules contained in the Convention.]

CARRIAGE OF GOODS BY SEA ACT 1992 (1992 CHAPTER 50) An Act to replace the Bills of Lading Act 1855 with new provision with respect to bills of lading and certain other shipping documents. [16th July 1992] 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) 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. (5)

The Secretary of State may by regulations make provision for the application of this Act to cases where [an electronic communications network]1 or any other information technology is used for effecting transactions corresponding to— (a) the issue of a document to which this Act applies; 320



Carriage of Goods by Sea Act 1992 (b) (c)

(6)



the indorsement, delivery or other transfer of such a document; or the doing of anything else in relation to such a document.

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. Amendment 1

Substituted by the Communications Act 2003, s  406(1), Sch  17, para 119.

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) 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. 321

 Statutes (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.

(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

Liabilities under shipping documents.

(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. 322



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(2)

Where the 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.

(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

Representations in bills of lading.

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 Interpretation etc. (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; …1 …1

(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; 323

 Statutes (b) (c)

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; 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.

(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. Amendments 1

Repealed by the Communications Act 2003, s 406(7), Sch 19(1).

6

Short title, repeal, commencement and extent.

(1)

This Act may be cited as the Carriage of Goods by Sea Act 1992.

(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 extends to Northern Ireland. 324

Index [all references are to paragraph number] A Appropriation of property ascertainment, distinguished from,  5.7 declaration of shipment, 5.12 exhaustion, by, 5.11 generally, 5.9 introduction, 5.7 meaning, 5.10 notice of appropriation, distinguished from, 5.12 ‘unconditional’, 5.9–5.11 Approximate quantities in sale contracts or bills of lading representations in bills, 6.19 Arrival/destination sale contracts ‘arrival terms’, 1.2 distinguished from shipment sale contracts, 1.7 Ascertainment of goods appropriation, distinguished from,  5.7 commingled goods, 5.8 definition, 5.6 exhaustion, by, 5.6 insolvent sellers, 5.8 necessary but not sufficient to pass property, 5.7 necessary for property to pass, 5.6 Attornees of the duty to deliver delivery of goods to, 2.8 B Bailment constructive possession, and, 2.8, 2.20, 2.35, 4.15, 4.16 delivery of goods, 2.8 transfer of risk, 4.15–4.16 Banks banks’ security, 2.62 bills made out to buyer’s order, 2.65 introduction, 2.61

Banks – contd letters of credit, 1.3, 1.28, 2.61–2.64, 5.21, 5.22, 6.3, 6.17, 6.27, 6.29, 7.25, 7.30, 8.22, 9.13 letters of trust, 2.66 limitations of pledge, 2.63 named as consignee under a bill of lading, 5.22 pledge by applicant buyer, 2.62– 2.63 security, as, 2.62 shipping document made out to bank, 2.64 Bill of lading charterparty bills of lading, 8.36 charterparties, under bill of lading as a receipt in hands of charterer, 8.24–8.28 buyer’s rights where bill of lading issued under charterparty, 8.29– 8.37 functions of bill of lading compared to functions of charterparty, 8.4 identifying contractual carrier from front of, 8.20–8.23 identifying whether charterparty or bill of lading governs relationship, 8.6–8.19 introduction, 8.1 issues arising, 8.5 need for bill of lading, 8.2 use of bill of lading and charterparty in same transaction, 8.3 conclusive proof, as to apparent order and condition of goods, 6.4 estoppel, 6.6–6.7 identity of goods, 6.4 qualifying statements by carriers, 6.7 quantity of goods, 6.4 receipt for shipment of goods, 6.5

325

 Index Bill of lading – contd conclusive proof, as to – contd ‘received for shipment’ bills, 2.12 shipment of goods, 6.5 signatory of bill, 6.8 unqualified statement, 6.6 definition, 2.2–2.5, 2.10, 2.11, 2.42– 2.43, 3.6, 8.36 delivery of goods definition of ‘lawful holder’, 2.13– 2.17 documents of title, as, 2.2–2.6 effect of lack of bill, 2.21–2.23 effect of loss of bill, 2.24 endorsee as holder, 2.16 ‘holder’, 2.14 ‘lawful’, 2.17 lawful holder, 2.10 named consignee as holder, 2.15 parties entitled to right of suit and delivery, 2.18 presentation of bill of lading for, 2.19–2.25 ‘straight’ bills, 2.11 document of title, as generally, 2.2 meaning, 2.3–2.5 documentary duties of sellers,  1.26 evidence of terms of contract of carriage, as between carrier and named consignee on sea waybill, 7.6 between carrier and transferee of bill, 7.5 between shipper and carrier, 7.4 continuous documentary cover to destination port agreed, 7.13– 7.35 deck stowage, 7.21–7.25 delivery order, in case of, 7.7 duty of seller to procure for buyer, 7.8–7.12 freight collect bills, 7.33–7.35 introduction, 7.1–7.2 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 purchased by buyer, 7.3–7.7

Bill of lading – contd evidence of terms of contract of carriage, as – contd stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 ‘holder’, 2.14 ‘lawful’, 2.17 lawful holder, 2.10 letters of credit, and, 6.3 named consignee as holder, 2.15 non-order bills, 2.11 presentation breach by carrier, and, 2.22 common law rule, 2.19 effect of lack of bill, 2.21–2.23 effect of loss of bill, 2.24 exceptions to rule, 2.23 indemnities, and, 2.25 introduction, 2.19 letters of indemnity, and, 2.25 practical solutions to difficulties with, 2.25 statutory requirement, 2.20 receipt, as buyer’s rights to demand ‘clean’ bill, 6.15–6.16 conclusive proof of certain matters, 6.4–6.8 introduction, 6.1–6.2 letters of credit, and, 6.3 relevance, 6.1–6.3 representations in the bill, 6.17– 6.41 role of receipt in Incoterms, 6.2 seller’s rights to demand ‘clean’ bill, 6.9–6.14 ‘received for shipment’ bills, 2.12 representations approximate quantities, 6.19 carrier’s qualifications, 6.23–6.27 cash against documents sales, 6.24– 6.27 ‘certificate final’ clauses, 6.31–6.41 clean/non-claused bill, 6.28–6.30 contract goods and no others, 6.18– 6.27 introduction, 6.17 multiple bills, 6.20–6.22

326

Index Bill of lading – contd representations – contd number of cargoes, 6.20–6.21 purpose, 6.17 quantity of goods, 6.18–6.19 ‘said to be’, weigh, contain, 6.23 ‘weight and quantity unknown’ clause, 6.24–6.27 significance, 2.1 ‘straight’ bills, 2.11 Buyer’s rights cause of action against the carrier, 1.15, 2.8, 2.10–2.11, 2.18, 2.35, 2.44, 2.52, 3.2, 3.5, 4.24, 4.27–4.29, 4.29, 4.32, 7.3, 8.13 cause of action against the shipper/ seller, 1.8, 2.58, 4.2, 4.3, 4.16, 4.37, 6.20–6.21, 6.30, 7.2, 7.10, 7.11, 7.17, 7.19, 7.23, 9.41 contract of carriage, under, 1.15, 2.8, 2.10–2.11, 2.18, 2.35, 2.44, 2.52, 3.2, 3.5, 4.24, 4.27–4.29, 4.29, 4.32, 7.3, 8.13 contract of sale, under, 1.8, 2.58, 4.2, 4.3, 4.16, 4.37, 6.20–6.21, 6.30, 7.2, 7.10, 7.11, 7.17, 7.19, 7.23, 9.41 delivery of goods background, 2.8 bills of lading, 2.10–2.25 competing claims, and, 2.53–2.68 delivery orders, 2.46–2.49 introduction, 2.7 multimodal transport documents, 2.50–2.52 parties with a right to delivery, 2.9 sea waybills, 2.32–2.38 spent bills of lading, 2.29–2.31 ‘straight’ bills of lading, 2.39–2.45 switch bills of lading, 2.26–2.28 receipt for shipment COGSA 1971, under, 6.16 common law, at, 6.15 C ‘Certificate final’ clauses ambit, 6.35 contractual avoidance, 6.41 description of goods, 6.38 fraud, 6.40–6.41 generally, 6.31–6.33

‘Certificate final’ clauses – contd intended effect, 6.35 judicial attitudes, 6.37–6.40 manifest error, 6.41 purpose, 6.34 quality of goods, 6.38 sampling method, 6.39 statutory legitimacy, 6.36 testing method, 6.39 Charterparties bill of lading as a receipt in hands of charterer buying FOB, 8.27–8.28 introduction, 8.24 selling CIF, 8.25–8.26 whether bill of lading or charterparty governs where bill of lading is in the hands of a charterer introduction, 8.7 issued to shipper and then passed to charterer, 8.9–8.11 passed from shipowner to charterer directly, 8.8 purpose, 8.12 buyer’s rights where bill issued under charterparty letter of credit, where, 8.34–8.36 rejection of bill, 8.29–8.33 charterer buying FOB generally, 8.27–8.28 introduction, 8.24 charterer selling CIF Hague-Visby incorporated, 8.25 Hague-Visby not incorporated,  8.26 introduction, 8.24 ‘charterparty bill of lading’, 8.36 functions, 8.4 identifying contractual carrier cesser clauses, 8.21 demise charterparties, 8.21 estoppel, 8.23 front of the bill, from, 8.22 generally, 8.20 The Starsin, 8.22 identifying document which governs relationship bill in hands of charterer, 8.7– 8.12 bill in hands of third party, 8.13

327



 Index Charterparties – contd identifying document which governs relationship – contd incorporation of clauses into bill, 8.14–8.19 introduction, 8.6 incorporation of clauses into bill arbitration, 8.18 consistency question, 8.17 description question, 8.16 general, in, 8.15–8.17 introduction, 8.14 practical significance, 8.19 introduction, 8.1 issues arising bill as a receipt in hands of charterer, 8.24–8.28 identifying contractual carrier, 8.20–8.23 identifying governing document, 8.6–8.19 introduction, 8.5 letters of credit, and expressly allow tender of charterparty bills, 8.35–8.36 issues arising in bills, 8.34 meaning, 8.4 need by charterer for bill of lading,  8.2 overview, 1.3 rejection of bill generally, 8.29 incorporation of charterparty terms, and, 8.31–8.32 non-compliance with sale contract, 8.33 sale contract, under, 8.30 use in same transaction as bill of lading, 8.3 ‘Classic’ FOB contracts physical duties of sellers, 1.21 Claused bills introduction, 6.28 meaning, 6.29 Clean bills examples, 6.29 introduction, 6.28 ‘shipped in apparent good order and condition – condition unknown’, 6.30

Combined transport documents see also Multimodal transport documents negotiability, 3.18 transferability, 3.11 Commercial risks international trade, in, 1.1 Commingled goods appropriation, and, 4.5, 5.5, 5.7, 5.9, 5.10, 5.11 ascertainment, and, 4.5, 5.5, 5.6, 5.14 transfer of property, 5.8 Competing claims delivery of goods banks, by, 2.61–2.66 holders of other originals in a set of bills, 2.67–2.68 introduction, 2.53 sellers, by, 2.54–2.58 stoppage in transit, 2.59–2.60 types of objection, 2.53 unpaid banks, by, 2.61–2.66 unpaid sellers, by, 2.54–2.58 Conclusive proof condition of goods, 6.4 estoppel, 6.6–6.7 identity of goods, 6.4 qualifying statements by carriers, 6.7 quantity of goods, 6.4 receipt for shipment of goods, 6.5 shipment of goods, 6.5 signatory of bill, 6.8 unqualified statement, 6.6 Condition of goods bill’s function as conclusive proof, 6.4 ‘Conditional’ appropriation transfer of property, 5.13 Conflict of laws introduction, 1.5 Consignees delivery of goods, 2.8 Container transport document (CTD) documents of title, as, 2.4 Contract terms bills as evidence between carrier and named consignee on sea waybill, 7.6 between carrier and transferee of bill, 7.5 between shipper and carrier, 7.4

328

Index Contract terms – contd bills as evidence – contd buyer entitled to delivery under delivery order, 7.7 buyer is lawful holder of bill or named consignee, 7.3 continuous documentary cover to destination port agreed, 7.13– 7.35 deck stowage, 7.21–7.25 duty of seller to procure for buyer, 7.8–7.12 freight collect bills, 7.33–7.35 introduction, 7.1–7.2 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 purchased by buyer, 7.3–7.7 stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 identification introduction, 1.29 parties’ intentions, 1.30 significance, 1.29 inconsistencies between standard terms and special terms, 1.36 incorporation contracts not yet concluded, from, 1.37 general criteria, 1.34–1.35 inconsistencies between standard terms and special terms, 1.36 Incoterms 2020, of, 1.38 international trade, 1.35 introduction, 1.31 risks, 1.32 rules, 1.33 parties’ intentions, 1.30 reservation of right to pass property conditional appropriation, 5.13 considerations, 5.13 generally, 5.13 legal effect of clause, 5.16 nature of clause, 5.13–5.14 purpose of clause, 5.15 range of clause, 5.15 significance, 1.29

Contracts of carriage introduction, 1.2 Contractual variations transfer of risk, 4.8–4.11 Cost and freight (C&F) duties of sellers, 1.10 introduction, 1.2 physical duties of sellers, 1.15 sales of goods or of documents, as, 1.9 themes, 1.3 Cost, insurance and freight (CIF) duties of sellers, 1.10 introduction, 1.2 physical duties of sellers compared with ‘extended’ FOB contracts, 1.23 generally, 1.15 sales of goods or of documents, as, 1.9 themes, 1.3 D Deck stowage contract allows deck stowage, 7.22 contract prohibits deck stowage, 7.23 contract silent as to deck stowage, 7.24 introduction, 7.21 letters of credit, and, 7.25 negligent, where carrier, 7.21 Defects and discrepancies evidence of terms of contract of carriage, and, 7.2 Delay caused by shipper transfer of risk, 4.13–4.14 Delivery of goods banks’ rights, and banks’ security, 2.62 bills made out to buyer’s order, 2.65 introduction, 2.61 letters of trust, 2.66 limitations of pledge, 2.63 pledge by applicant buyer, 2.62– 2.63 shipping document made out to bank, 2.64 security, 2.62 bills of lading definition of ‘lawful holder’, 2.13– 2.17 documents of title, as, 2.2–2.6

329



 Index Delivery of goods – contd bills of lading – contd effect of lack of bill, 2.21–2.23 effect of loss of bill, 2.24 endorsee as holder, 2.16 exclusion of non-order bills, 2.11 ‘holder’, 2.14 ‘lawful’, 2.17 lawful holder, 2.10 named consignee as holder, 2.15 parties entitled to right of suit and delivery, 2.18 presentation, 2.19–2.25 ‘received for shipment’ bills, 2.12 ‘straight’ bills, 2.11 COGSA 1992, under background, 2.8 bills of lading, 2.10–2.25 competing claims, and, 2.53–2.68 delivery orders, 2.46–2.49 introduction, 2.7 multimodal transport documents, 2.50–2.52 rightsholders, 2.9 sea waybills, 2.32–2.38 spent bills of lading, 2.29–2.31 ‘straight’ bills of lading, 2.39–2.45 switch bills of lading, 2.26–2.28 competing claims, and banks, by, 2.61–2.66 holders of other originals in a set of bills, 2.67–2.68 introduction, 2.53 sellers, by, 2.54–2.58 stoppage in transit, 2.59–2.60 types of objection, 2.53 unpaid banks, by, 2.61–2.66 unpaid sellers, by, 2.54–2.58 contractual right, under background, 2.8 bills of lading, 2.10–2.25 competing claims, and, 2.53–2.68 delivery orders, 2.46–2.49 introduction, 2.7 multimodal transport documents, 2.50–2.52 rightsholders, 2.9 sea waybills, 2.32–2.38 spent bills of lading, 2.29–2.31 ‘straight’ bills of lading, 2.39–2.45

Delivery of goods – contd contractual right, under – contd switch bills of lading, 2.26–2.28 delivery orders definition by COGSA, 2.47 generally, 2.46 meaning, 2.46 presentation, 2.49 right to delivery, and, 2.48 use, 2.46 holders of other originals in a set of bills, and fraud risk, 2.68 generally, 2.67 introduction, 2.7 multimodal transport documents generally, 2.50 meaning, 2.50 presentation, 2.52 right to delivery, and, 2.51 presentation of bills breach by carrier, and, 2.22 common law rule, 2.19 effect of lack of bill, 2.21–2.23 effect of loss of bill, 2.24 exceptions to rule, 2.23 introduction, 2.19 letters of indemnity, and, 2.25 practical solutions to difficulties with, 2.25 statutory requirement, 2.20 privity, and, 2.8 ‘received for shipment’ bills, 2.12 rightsholders delivery orders, 2.46–2.49 introduction, 2.9 multimodal transport documents, 2.50–2.52 sea waybills, 2.32–2.38 spent bills of lading, 2.29–2.31 ‘straight’ bills of lading, 2.39–2.45 switch bills of lading, 2.26–2.28 sea waybills commercial justification for nondelivery, 2.37 definition by COGSA, 2.34 introduction, 2.32 meaning, 2.32 non-presentation, 2.37–2.38 presentation, 2.36

330

Index Delivery of goods – contd sea waybills – contd purpose, 2.32 right to delivery, and, 2.35 use of, 2.33 sellers’ claims, and buyers’ position, 2.57–2.58 carriers, against, 2.55–2.56 generally, 2.54 ‘order’ bills, under, 2.55 other documents, under, 2.56 set of bills, and fraud risk, 2.68 generally, 2.67 spent bills of lading, 2.29–2.31 stoppage in transit generally, 2.59 transfer of ‘order’ bills, after,  2.60 ‘straight’ bills of lading COGSA, under, 2.43 generally, 2.39 meaning, 2.39 named consignee’s estoppel,  2.45 presentation, 2.42 right to delivery, and, 2.41 shipper’s rights against carrier,  2.44 status, 2.40 switch bills of lading, 2.26–2.28 transferability, 3.4 unpaid banks’ rights, and banks’ security, 2.62 bills made out to buyer’s order,  2.65 introduction, 2.61 letters of trust, 2.66 limitations of pledge, 2.63 pledge by applicant buyer, 2.62– 2.63 shipping document made out to bank, 2.64 security, 2.62 unpaid sellers’ rights, and buyers’ position, 2.57–2.58 carriers, against, 2.55–2.56 generally, 2.54 ‘order’ bills, under, 2.55 other documents, under, 2.56

Delivery orders definition by COGSA, 2.47 generally, 2.46 meaning, 2.46 negotiability, 3.18 presentation, 2.49 right to delivery, and generally, 2.48 introduction, 2.8 transferability, 3.14 use, 2.46 Destination port continuous documentary cover to port agreed freight collect bills, 7.33–7.35 introduction, 7.13 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 features of shipment sales, 1.2 Destination/arrival sale contracts distinction from shipment sale contracts, 1.7 Deterioration of goods transfer of risk, 4.23 Deviation COGSA 1971, under, 7.20 direct shipment not required in sale contract, 7.15–7.19 direct shipment required in sale contract, 7.14 residual doctrine of fundamental breach, 7.19 rule in Glynn v Margetson, 7.17– 7.18 Documentary duties of sellers bill of lading, 1.26 generally, 1.24 importance of ‘documents’ clause, 1.25 introduction, 1.10 Documentary performance introduction, 1.3 Documentary sales distinction from shipment sales, 1.7

331



 Index Documents of title generally, 2.2 meaning, 2.3–2.5 negotiability Factors Act 1889, under, 3.15–3.17 generally, 3.7 introduction, 3.5 transferability generally, 3.7 introduction, 3.5 Duties of sellers documentary bill of lading, 1.26 generally, 1.24 importance of ‘documents’ clause, 1.25 introduction, 1.10 introduction, 1.10 physical generally, 1.11 goods, as to, 1.12 introduction, 1.10 shipment of the goods, as to, 1.13– 1.23 procure carriage contract for buyer express term, under, 7.9 introduction, 7.8 limits, 7.11 reasonable or usual contract, in, 7.10 stipulation for specific terms, 7.12 E Electronic bill document of title, as, 2.4 Endorsed ‘to order’ delivery orders transferability, 3.14 Estoppel acceptance of clearly defective documents, 9.35–9.36 actions of a bank, 9.43 bill’s function as conclusive proof, 6.6–6.7 constructive notice of documentary defect, 9.37 damages for loss of opportunity to reject, 9.40 degree of independence of rights, 9.38 other grounds for, 9.41 summary, 9.42

Evidence of terms of contract of carriage between carrier and named consignee on sea waybill, 7.6 between carrier and transferee of bill, 7.5 between shipper and carrier, 7.4 buyer entitled to delivery under delivery order, 7.7 buyer is lawful holder of bill or named consignee, 7.3 continuous documentary cover to destination port agreed freight collect bills, 7.33–7.35 introduction, 7.13 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 deck stowage, 7.21–7.25 defects and discrepancies, and, 7.2 duty of seller to procure carriage contract for buyer express term, under, 7.9 introduction, 7.8 limits, 7.11 reasonable or usual contract, in, 7.10 stipulation for specific terms, 7.12 freight collect bills generally, 7.33 letter of credit, where, 7.35 no letter of credit, where, 7.34 introduction, 7.1–7.2 letters of credit, and freight collect bills, 7.35 liberty to stow cargo on deck, 7.25 transhipment, 7.30 liberty of carrier to deviate COGSA 1971, under, 7.20 direct shipment not required by sale contract, 7.15–7.19 direct shipment required by sale contract, 7.14 residual doctrine of fundamental breach, 7.19

332

Index Evidence of terms of contract of carriage – contd liberty of carrier to deviate – contd rule in Glynn v Margetson, 7.17– 7.18 liberty to stow cargo on deck contract allows deck stowage, 7.22 contract prohibits deck stowage, 7.23 contract silent as to deck stowage, 7.24 introduction, 7.21 letters of credit, and, 7.25 negligence, where, 7.21 purchased by buyer, 7.3–7.7 stipulated destination different to sale contract destination generally, 7.31 vessel able to reach, 7.32 title to sue, and, 7.1 transhipment contract allows, 7.27 contract prohibits, 7.28 contract silent, 7.29 introduction, 7.26 letters of credit, and, 7.30 meaning, 7.26 Exhaustion transfer of property appropriation, 5.11 ascertainment, 5.6 ‘Extended’ FOB contracts physical duties of sellers compared with CIF contracts, 1.23 generally, 1.22 F

Factors Act 1889 negotiability, 3.7 Fraud transfer of property, 5.1 Free alongside ship (FAS) duties of sellers, 1.10 Free on board (FOB) ‘classic’ FOB contracts, 1.21 duties of sellers, 1.10 ‘extended’ FOB contracts compared with CIF contracts, 1.23 generally, 1.22 introduction, 1.2

Free on board (FOB) – contd physical duties of sellers ‘classic’ FOB contracts, 1.21 ‘extended’ FOB contracts, 1.22– 1.23 generally, 1.16 ‘straight’ FOB contracts, 1.17–1.20 sales of goods or of documents, as,  1.9 ‘straight’ FOB contracts Pyrene v Scindia, 1.18 result of cases, 1.20 seller as party to carriage contract generally, 1.17 The Athanasia Comninos, 1.19 Freight collect bills generally, 7.33 letter of credit, where, 7.35 no letter of credit, where, 7.34 G Governing law duties of sellers, 1.10 introduction, 1.5 H Hague-Visby Rules documents of title, 2.4 transferability, 3.6 Holders of other originals in a set of bills delivery of goods fraud risk, 2.68 generally, 2.67 I Identity of goods bill’s function as conclusive proof, 6.4 Incorporation of charterparty clauses into bills arbitration, 8.18 consistency question, 8.17 description question, 8.16 general, in, 8.15–8.17 introduction, 8.14 practical significance, 8.19 Incorporation of terms contracts not yet concluded, from, 1.37 general criteria, 1.34–1.35

333



 Index Incorporation of terms – contd inconsistencies with special conditions, 1.36 Incoterms 2020, of, 1.38 international trade, 1.35 introduction, 1.31 risks, 1.32 rules, 1.33 Incoterms 2020 any mode of transport, for, 1.10 documentary duties bill of lading, 1.26 generally, 1.24 importance of ‘documents’ clause, 1.25 introduction, 1.10 duties of sellers documentary, 1.24–1.26 introduction, 1.10 physical, 1.11–1.23 incorporation, 1.38 introduction, 1.10 physical duties generally, 1.11 goods, as to, 1.12 introduction, 1.10 shipment of the goods, as to, 1.13– 1.23 sea and inland waterway transport, for, 1.10 terminology, 1.10 Insolvency transfer of property, 5.1 Insolvent parties to the sale contract transfer of property, 5.8 Intention of parties terms of contract, 1.30 L Landed weight transfer of risk, 4.9 Late discharge transfer of risk, 4.14 Late shipment transfer of risk, 4.13 Letters of credit bills as evidence of terms of contract of carriage freight collect bills, 7.35 liberty to stow cargo on deck, 7.25

Letters of credit – contd bills as evidence of terms of contract of carriage – contd transhipment, 7.30 charterparties, and expressly allow tender of charterparty bills, 8.35–8.36 issues arising in bills, 8.34 description, 1.27–1.28 documents of title, and, 2.4 freight collect bills, 7.35 introduction, 1.2 liberty to stow cargo on deck, 7.25 passing of property bank named as consignee, 5.22 introduction, 5.21 payment risks, 1.27 practice, in, 1.28 receipt for shipment, and, 6.3 representations in bills generally, 6.17 ‘weight and quantity unknown’ clause, 6.27 stowage of cargo on deck, 7.25 transhipment, 7.30 Liberty of carrier deviation COGSA 1971, under, 7.20 direct shipment not required by sale contract, 7.15–7.19 direct shipment required by sale contract, 7.14 residual doctrine of fundamental breach, 7.19 rule in Glynn v Margetson, 7.17–7.18 stowing cargo on deck contract allows deck stowage, 7.22 contract prohibits deck stowage, 7.23 contract silent as to deck stowage, 7.24 introduction, 7.21 letters of credit, and, 7.25 negligence, where, 7.21 Loading port features of shipment sales, 1.2 M Misuse of documents transfer of property, 5.1

334

Index Multimodal transport documents delivery of goods generally, 2.50 meaning, 2.50 presentation, 2.52 right to delivery, and, 2.51 transferability, 3.11 Multiple bills generally, 6.20 position between seller and buyer, 6.21 position between seller and carrier, 6.22 N Negotiability bills of lading, 3.16 combined transport documents, 3.18 definition, 3.5–3.6 delivery orders, 3.18 distinction from transferability generally, 3.5 introduction, 3.1 documents of title Factors Act 1889, under, 3.15– 3.17 generally, 3.7 introduction, 3.5 meaning, 3.5–3.6 ‘received for shipment’ bills, 3.18 sea waybills, 3.17 ‘Negotiable’ bill of lading document of title, as, 2.4 ‘Non-transferable’ transferability, 3.6 Notice of appropriation appropriation, distinguished from, 5.12 Notice to insure transfer of risk, 4.19–4.22 O ‘On spec’ distinction between shipment and arrival sales, 1.7 Out-turn quantity transfer of risk, 4.9 Ownership transfer of property, 5.2–5.3 transferability, 3.5

P Passing of property appropriation, by declaration of shipment, 5.12 exhaustion, by, 5.11 generally, 5.9 introduction, 5.7 meaning, 5.10 notice, 5.12 ‘unconditional’, 5.9–5.11 ascertainment, and commingled goods, 5.8 exhaustion, by, 5.6 insolvent sellers, 5.8 necessary but not sufficient to pass property, 5.7 necessary for property to pass,  5.6 bank named as consignee, 5.22 bill of lading, under generally, 5.17 introduction, 5.13 made out to order of buyer, where, 5.19 made out to order of seller, where, 5.18 payment ‘cash against documents’, 5.20 presumptions as to intention,  5.17 commingled goods, 5.8 ‘conditional’ appropriation, 5.13 contractual reservation of title, by conditional appropriation, 5.13 considerations, 5.13 generally, 5.13 legal effect of clause, 5.16 nature of clause, 5.13–5.14 purpose of clause, 5.15 range of clause, 5.15 distinction from transfer of risk, 4.2 exhaustion appropriation, 5.11 ascertainment, 5.6 express reservation of title, by contractual clause, 5.13–5.16 issue of bill of lading, 5.17–5.20 fraud, and, 5.1 insolvency, and, 5.1 insolvent sellers, 5.8

335



 Index Passing of property – contd issue of bill of lading, by generally, 5.17 introduction, 5.13 made out to order of buyer, where, 5.19 made out to order of seller, where, 5.18 payment ‘cash against documents’, 5.20 presumptions as to intention, 5.17 letters of credit, and bank named as consignee, 5.22 introduction, 5.21 misuse of documents, and, 5.1 no express term, where appropriation, 5.7, 5.9–5.11 ascertainment, 5.6–5.7 declaration of shipment, 5.12 introduction, 5.5 ‘specific goods’, 5.5 ownership, and, 5.2–5.3 payment ‘cash against documents’, where, 5.20 possession, and, 5.2–5.3 presumptions where no express term appropriation, 5.7, 5.9–5.11 ascertainment, 5.6–5.7 declaration of shipment, 5.12 introduction, 5.5 sale or return terms, 5.5 ‘specific goods’, 5.5 property distinction from possession, 5.2–5.3 introduction, 5.1 significance in trade, 5.1 Romalpa clause, by introduction, 5.13 legal effect, 5.16 nature, 5.14 purpose, 5.15 range, 5.15 sale or return terms, on, 5.5 SOGA 1979, under contractual reservation of right, 5.13–5.16 intention of parties, 5.4 issue of bill of lading, 5.17–5.20 no express term, 5.5–5.12 ‘specific goods’, 5.5

Passing of property – contd third party position, 5.2 unascertained goods, 5.6 ‘unconditional’ appropriation, by declaration of shipment, 5.12 exhaustion, by, 5.11 generally, 5.9 meaning, 5.10 Payment ‘cash against documents’ transfer of property, 5.20 Performance of contracts introduction, 1.3 Person bound to make contract of carriage C&F and CIF sales, in, 1.15 ‘classic’ FOB contracts, in, 1.21 ‘extended’ FOB contracts, in compared with CIF contracts, 1.23 generally, 1.22 FOB sales, in, 1.16 generally, 1.14 Pyrene v Scindia, 1.18 ‘straight’ FOB contracts, in generally, 1.17 Pyrene v Scindia, 1.18 result of cases, 1.20 The Athanasia Comninos, 1.19 The Athanasia Comninos, 1.19 Physical duties of sellers C&F and CIF sales, in, 1.15 ‘classic’ FOB contracts, in, 1.21 ‘extended’ FOB contracts, in compared with CIF contracts, 1.23 generally, 1.22 FOB sales, in ‘classic’ FOB contracts, 1.21 ‘extended’ FOB contracts, 1.22– 1.23 generally, 1.16 ‘straight’ FOB contracts, 1.17–1.20 generally, 1.11 goods, as to, 1.12 introduction, 1.10 person bound to make contract of carriage C&F and CIF sales, in, 1.15 ‘classic’ FOB contracts, in, 1.21 ‘extended’ FOB contracts, in, 1.22– 1.23 FOB sales, in, 1.16

336

Index Physical duties of sellers – contd person bound to make contract of carriage – contd generally, 1.14 Pyrene v Scindia, 1.18 ‘straight’ FOB contracts, in, 1.17– 1.20 The Athanasia Comninos, 1.19 shipment of the goods, as to introduction, 1.13 person bound to make contract of carriage, 1.14–1.23 ‘straight’ FOB contracts, in generally, 1.17 Pyrene v Scindia, 1.18 result of cases, 1.20 The Athanasia Comninos, 1.19 Physical performance introduction, 1.3 Possession constructive, 2.3, 3.2, 3.12, 4.36, 4.37 distinguished from ownership, 5.2 transfer of property, 5.2–5.3 Presentation of bills breach by carrier, and, 2.22 common law rule, 2.19 effect of lack of bill, 2.21–2.23 effect of loss of bill, 2.24 exceptions to rule, 2.23 introduction, 2.19 letters of indemnity, and, 2.25 practical solutions to need, 2.25 statutory requirement, 2.20 Property see also Transfer of property; Appropriation distinguished from possession, 5.2–5.3 introduction, 5.1 significance in trade, 5.1 Pyrene v Scindia 1.18 Q Quantity of goods approximate quantities, 6.19 bill’s function as conclusive proof, 6.4 carrier’s qualifications generally, 6.23 ‘weight and quantity unknown’ clause, 6.24–6.27 generally, 6.18

Quantity of goods – contd multiple bills generally, 6.20 position between seller and buyer, 6.21 position between seller and carrier, 6.22 ‘said to contain’, ‘said to be’, 6.23 ‘weight and quantity unknown’ clause introduction, 6.23 letters of credit, and, 6.27 Libeau Wood v H Smith, 6.25–6.26 The Galatia, 6.24–6.26 R Reasonable contract of carriage transfer of risk, 4.17–4.18 Receipt for shipment bill’s function as conclusive proof, 6.5 buyer’s rights under contract of carriage COGSA 1971, under, 6.16 common law, at, 6.15 conclusive proof, as condition of goods, 6.4 estoppel, 6.6–6.7 identity of goods, 6.4 qualifying statements by carriers, 6.7 quantity of goods, 6.4 receipt for shipment of goods, 6.5 shipment of goods, 6.5 signatory of bill, 6.8 unqualified statement, 6.6 introduction, 6.1–6.2 letters of credit, and, 6.3 relevance, 6.1–6.3 representations approximate quantities, 6.19 carrier’s qualifications, 6.23–6.27 cash against documents sales, 6.24– 6.27 ‘certificate final’ clauses, 6.31–6.41 cleanliness of bill, 6.28–6.30 contract goods and no others, 6.18– 6.27 introduction, 6.17 multiple bills, 6.20–6.22 number of cargoes, 6.20–6.21 purpose, 6.17

337



 Index Receipt for shipment – contd representations – contd quantity of goods, 6.18–6.19 ‘weight and quantity unknown’ clause, 6.24–6.27 role of Incoterms, 6.2 seller’s rights under contract of carriage carrier’s position, 6.12–6.13 COGSA 1971, under, 6.11 common law, at, 6.10 indemnity for carrier against inaccurate information, 6.13 introduction, 6.9 practice, in, 6.14 ‘Received for shipment’ bills delivery of goods, 2.12 introduction, 1.8 negotiability, 3.18 transferability consequences, 3.13 generally, 3.12 introduction, 3.11 Re-endorsing bill effect on title to sue, 4.11 Rejection of documents and goods see also Termination accurately dated bill generally, 9.6 shipment in time but inaccurate date of shipment, 9.9 shipment in time but inaccurate statement shipment out of time, 9.7 shipment out of time but inaccurate statement shipment in time, 9.8 charterparty bills, and generally, 8.29 incorporation of charterparty terms, and, 8.31–8.32 non-compliance with sale contract, 8.33 sale contract, under, 8.30 conditions de minimis threshold, 9.12–9.17 generally, 9.10 use in international trade, 9.11 damages for loss of opportunity to reject defect in documents alone causing no loss, 9.34

Rejection of documents and goods – contd damages for loss of opportunity to reject – contd estoppel, and, 9.40 market fluctuations, 9.33 questions raised by right of recovery, 9.31 type of loss recoverable, 9.32 documents reach buyer before goods buyer does not notice documentary defect, 9.28 estoppel acceptance of clearly defective documents, 9.35–9.36 actions of a bank, 9.43 constructive notice of documentary defect, 9.37 damages for loss of opportunity to reject, 9.40 degree of independence of rights, 9.38 other grounds, 9.41 summary, 9.42 goods reach buyer before documents buyer does not notice documentary defect, 9.30 buyer notices documentary defect, 9.29 independent rights documents reach buyer before goods, 9.28–9.30 generally, 9.27 introduction, 9.1 legal and commercial features, 9.3–9.4 legal questions raised damages for loss of opportunity to reject, 9.31–9.34 independent rights, 9.27–9.30 introduction, 9.25 loss through estoppel, 9.35–9.43 separate rights, 9.26 loss through estoppel acceptance of clearly defective documents, 9.35–9.36 actions of a bank, 9.43 constructive notice of documentary defect, 9.37 damages for loss of opportunity to reject, 9.40

338

Index Rejection of documents and goods – contd loss through estoppel – contd degree of independence of rights, 9.38 other grounds, 9.41 summary, 9.42 seller’s documentary duties accurately dated bill, 9.6–9.9 conditions, warranties or innominate terms, 9.10–9.17 no right to cure documentary defect, 9.18 strict compliance, 9.12–9.17 time of shipment, 9.5 separate rights, 9.26 shipment sales, in, 9.2 tender of accurately dated bill generally, 9.6 shipment in time but inaccurate date of shipment, 9.9 shipment in time but inaccurate statement shipment out of time, 9.7 shipment out of time but inaccurate statement shipment in time, 9.8 time of shipment of the essence, 9.5 Representations in bill approximate quantities, 6.19 carrier’s qualifications as to quantity generally, 6.23 ‘weight and quantity unknown’ clause, 6.24–6.27 ‘said to contain’, ‘said to be’ 6.23 cash against documents sales, 6.24– 6.27 ‘certificate final’ clauses ambit, 6.35 contractual avoidance, 6.41 description of goods, 6.38 fraud, 6.40–6.41 generally, 6.31–6.33 intended effect, 6.35 judicial attitudes, 6.37–6.40 manifest error, 6.41 purpose, 6.34 quality of goods, 6.38 sampling method, 6.39 statutory legitimacy, 6.36 testing method, 6.39

Representations in bill – contd claused bills introduction, 6.28 meaning, 6.29 clean bills examples, 6.29 introduction, 6.28 ‘shipped in apparent good order and condition – condition unknown’, 6.30 contract goods and no others approximate quantities, 6.19 carrier’s qualifications, 6.23–6.27 multiple bills, 6.20–6.22 number of cargoes, 6.20–6.21 quantity of goods, 6.18–6.19 ‘weight and quantity unknown’ clause, 6.24–6.27 introduction, 6.17 letters of credit, and generally, 6.17 ‘weight and quantity unknown’ clause, 6.27 multiple bills generally, 6.20 position between seller and buyer, 6.21 position between seller and carrier, 6.22 number of cargoes, 6.20–6.21 purpose, 6.17 quantity of goods approximate quantities, 6.19 carrier’s qualifications, 6.23–6.27 generally, 6.18 multiple bills, 6.20–6.22 ‘said to contain’, ‘said to be’ 6.23 sale contracts, and, 6.17 ‘shipper’s load and tally’, 6.23 ‘weight and quantity unknown’ clause introduction, 6.23 letters of credit, and, 6.27 Libeau Wood v H Smith, 6.25–6.26 The Galatia, 6.24–6.26 Res inter alios acta Recovery of damages against both seller and carrier 4.37–4.41 Right of delivery see also Delivery of goods transferability, 3.4

339



 Index Right to sue carrier COGSA 1992, under bills made out to order of named consignee, 4.28 bills made out to shipper’s order, 4.29–4.30 delivery orders, 4.25 endorsement by shipper, 4.27–4.31 generally, 4.24 method of endorsement of bills, 4.31 order bills, 4.27 sea waybills, 4.25 straight bills, 4.25 transferable bills, 4.26 implied contract, under Brandt v Liverpool Brazil, 4.33 damages, 4.37–4.41 generally, 4.32 limitations, 4.34–4.35 negligence, in damages, 4.37–4.41 generally, 4.36 Risk bailment, 4.15–4.16 contractual variations construed restrictively, 4.8–4.11 delay caused by shipper, 4.13–4.14 derogation from SOGA 1979, and contractual variations construed restrictively, 4.8–4.11 generally, 4.3 landed weight, 4.9 out-turn quantity, 4.9 reasons for risk passing, 4.4–4.6 re-endorsing bill back to seller, 4.11 retroactive transfer, 4.5–4.6 risk passes if seller performed other duties, 4.7 seller retains rights against carrier, 4.11 stipulated arrival date, 4.10 deterioration of goods, 4.23 distinguished from ownership 4.2 generally, 1.8, 4.2 introduction, 4.1 landed weight, 4.9 late discharge, 4.14 late shipment, 4.13 meaning, 4.2

Risk – contd notice to insure to be given, 4.19–4.22 out-turn quantity, 4.9 passes if the seller has performed other duties, 4.7 passing ‘on or as from shipment’, 4.4– 4.6 procuring a reasonable contract of carriage, 4.17–4.18 reasons for risk passing, 4.4–4.6 re-endorsing bill back to seller, 4.11 retroactive transfer, 4.5–4.6 right to sue carrier COGSA 1992, under, 4.24–4.31 implied contract, under, 4.32–4.35 negligence, in, 4.36–4.37 right to sue carrier in negligence damages, 4.37–4.41 generally, 4.36 right to sue carrier under COGSA 1992 bills made out to order of named consignee, 4.28 bills made out to shipper’s order, 4.29–4.30 delivery orders, 4.25 endorsement by shipper, 4.27–4.31 generally, 4.24 method of endorsement of bills, 4.31 order bills, 4.27 sea waybills, 4.25 straight bills, 4.25 transferable bills, 4.26 right to sue carrier under implied contract Brandt v Liverpool Brazil, 4.33 damages, 4.37–4.41 generally, 4.32 limitations, 4.34–4.35 seller retains rights against carrier, 4.11 shipment sales, in derogation from general rule, 4.3– 4.11 special rules, 4.12–4.23 special rules under SOGA 1979, and bailment, 4.15–4.16 delay caused by shipper, 4.13–4.14 deterioration of goods, 4.23

340

Index Risk – contd special rules under SOGA 1979, and – contd introduction, 4.12 late discharge, 4.14 late shipment, 4.13 notice to insure to be given, 4.19– 4.22 procuring a reasonable contract of carriage, 4.17–4.18 stipulated arrival date, 4.10 Romalpa clauses introduction, 5.13 legal effect, 5.16 nature, 5.14 purpose, 5.15 range, 5.15 Rome I Regulation (EC) 593/2008 introduction, 1.5 S Sale of documents shipment sales, and, 1.9 Sale of goods physical duties of sellers, 1.12 shipment sales, and, 1.9 ‘Said to weigh’, ‘said to contain’, ‘said to be’ representations in bills, 6.23 Sale contracts buyer’s rights to representations in bills, 6.17 Sale of Goods Act 1979 transfer of property contractual reservation of right, 5.13–5.16 intention of parties, 5.4 issue of bill of lading, 5.17–5.20 no express term, 5.5–5.12 transferability, 3.7 Sale or return terms transfer of property, 5.5 Sea waybills delivery of goods commercial justification for nondelivery, 2.37 definition by COGSA 1992, 2.34 generally, 2.8, 2.32 meaning, 2.32 non-presentation, 2.37–2.38

Sea waybills – contd delivery of goods – contd presentation, 2.36 purpose, 2.32 right to delivery, and, 2.35 use, 2.33 document of title, as, 2.4 negotiability, 3.17 non-transferability generally, 3.8–3.9 tender under contract of sale, 3.10 Sellers’ duties documentary bill of lading, 1.26 generally, 1.24 importance of ‘documents’ clause, 1.25 introduction, 1.10 introduction, 1.10 physical generally, 1.10, 1.11 goods, as to, 1.12 shipment of the goods, as to, 1.13– 1.23 procure carriage contract for buyer express term, under, 7.9 introduction, 7.8 limits, 7.11 reasonable or usual contract, in, 7.10 stipulation for specific terms, 7.12 Sellers’ rights delivery of goods buyers’ position, 2.57–2.58 carriers, against, 2.55–2.56 generally, 2.54 ‘order’ bills, under, 2.55 other documents, under, 2.56 receipt for shipment carrier’s position, 6.12–6.13 COGSA 1971, under, 6.11 common law, at, 6.10 indemnity for carrier against inaccurate information, 6.13 introduction, 6.9 practice, in, 6.14 Set of bills delivery of goods fraud risk, 2.68 generally, 2.67

341



 Index Ship’s delivery orders definition by COGSA, 2.47 generally, 2.46 meaning, 2.46 negotiability distinguished from transferability, 3.18 presentation, 2.49 right to delivery, and generally, 2.48 introduction, 2.8 transferability, 3.14 use, 2.46 Shipment of goods bill’s function as conclusive proof, 6.5 physical duties of sellers introduction, 1.13 person bound to make contract of carriage, 1.14–1.23 Shipment sales consequences, 1.8 distinction from domestic and arrival/ destination sales, 1.7 documentary duties bill of lading, 1.26 generally, 1.24 importance of ‘documents’ clause, 1.25 introduction, 1.10 duties of sellers documentary, 1.24–1.26 introduction, 1.10 physical, 1.11–1.23 features, 1.2 goods or documents, and, 1.9 Incoterms 2020, 1.10 introduction, 1.1 physical duties generally, 1.11 goods, as to, 1.12 introduction, 1.10 shipment of the goods, as to, 1.13– 1.23 ‘shipment terms’, 1.2 themes, 1.3–1.6 transfer of risk derogation from general rule, 4.3– 4.11 special rules, 4.12–4.23 types of contract, 1.2

‘Shipper’s load and tally’ representations in bills, 6.23 Signatory of bill bill’s function as conclusive proof,  6.8 ‘Specific goods’ transfer of property, 5.5 Spent bills of lading delivery of goods, 2.29–2.31 Stipulated arrival date transfer of risk, 4.10 Stipulated destination different to sale contract destination generally, 7.31 vessel able to reach, 7.32 Stoppage in transit generally, 2.59 transfer of ‘order’ bills, after, 2.60 Stowage of cargo on deck contract allows deck stowage, 7.22 contract prohibits deck stowage,  7.23 contract silent as to deck stowage, 7.24 introduction, 7.21 letters of credit, and, 7.25 negligence, where, 7.21 ‘Straight’ bills of lading delivery of goods COGSA 1992, under, 2.43 generally, 2.39 meaning, 2.39 named consignee’s estoppel, 2.45 presentation, 2.42 right to delivery, and, 2.41 shipper’s rights against carrier,  2.44 status, 2.40 non-transferability generally, 3.8–3.9 tender under contract of sale,  3.10 ‘Straight’ FOB contracts physical duties of sellers generally, 1.17 Pyrene v Scindia, 1.18 result of cases, 1.20 The Athanasia Comninos, 1.19 Switch bills of lading delivery of goods, 2.26–2.28

342

Index T Tender of bills charterparties, under bill as a receipt in hands of charterer, 8.24–8.28 buyer’s rights where bill issued under charterparty, 8.29– 8.37 functions of bill and charterparty, 8.4 identifying contractual carrier, 8.20–8.23 identifying document which governs relationship, 8.6–8.19 introduction, 8.1 issues arising, 8.5 need for bill of lading, 8.2 use of bill and charterparty in same transaction, 8.3 evidence of terms of contract of carriage, as between carrier and named consignee on sea waybill, 7.6 between carrier and transferee of bill, 7.5 between shipper and carrier, 7.4 buyer entitled to delivery under delivery order, 7.7 buyer is lawful holder of bill or named consignee, 7.3 continuous documentary cover to destination port agreed, 7.13– 7.35 deck stowage, 7.21–7.25 duty of seller to procure for buyer, 7.8–7.12 freight collect bills, 7.33–7.35 introduction, 7.1–7.2 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 purchased by buyer, 7.3–7.7 stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 receipt for shipment of goods, as buyer’s rights to demand ‘clean’ bill, 6.15–6.16

Tender of bills – contd receipt for shipment of goods, as – contd conclusive proof of certain matters, 6.4–6.8 introduction, 6.1–6.2 letters of credit, and, 6.3 relevance, 6.1–6.3 representations in the bill, 6.17– 6.41 role of Incoterms, 6.2 seller’s rights to demand ‘clean’ bill, 6.9–6.14 ‘straight’ bills of lading, 3.10 Termination see also Rejection of documents and goods accurately dated bill generally, 9.6 shipment in time but inaccurate date of shipment, 9.9 shipment in time but inaccurate statement shipment out of time, 9.7 shipment out of time but inaccurate statement shipment in time, 9.8 clear and hidden documentary defects, 9.20 conditions de minimis threshold, 9.12– 9.17 generally, 9.10 use in international trade, 9.11 documents and goods travelling separately, 9.20 documents reach buyer before goods buyer does not notice documentary defect, 9.22 buyer notices documentary defect, 9.21 goods reach buyer before documents buyer does not notice documentary defect, 9.24 buyer notices documentary defect, 9.23 introduction, 9.1 legal and commercial features, 9.3– 9.4 meaning, 9.4

343



 Index Termination – contd receipt for shipment of goods, as practical constraints clear and hidden documentary defects, 9.20 documents and goods travelling separately, 9.20 documents reach buyer before goods, 9.21–9.22 goods reach buyer before documents, 9.23–9.24 introduction, 9.19 problem areas, 9.19 seller’s documentary duties accurately dated bill, 9.6–9.9 conditions, warranties or innominate terms, 9.10–9.17 no right to cure documentary defect, 9.18 strict compliance, 9.12–9.17 time of shipment, 9.5 shipment sales, in, 9.2 tender of accurately dated bill generally, 9.6 shipment in time but inaccurate date of shipment, 9.9 shipment in time but inaccurate statement shipment out of time, 9.7 shipment out of time but inaccurate statement shipment in time, 9.8 time of shipment of the essence, 9.5 Terms of contract bills as evidence between carrier and named consignee on sea waybill, 7.6 between carrier and transferee of bill, 7.5 between shipper and carrier, 7.4 buyer entitled to delivery under delivery order, 7.7 buyer is lawful holder of bill or named consignee, 7.3 continuous documentary cover to destination port agreed, 7.13– 7.35 deck stowage, 7.21–7.25 duty of seller to procure for buyer, 7.8–7.12 freight collect bills, 7.33–7.35

Terms of contract – contd bills as evidence – contd introduction, 7.1–7.2 liberty of carrier to deviate, 7.14– 7.20 liberty to stow cargo on deck, 7.21– 7.25 purchased by buyer, 7.3–7.7 stipulated destination different to sale contract destination, 7.31– 7.32 transhipment, 7.26–7.30 identification introduction, 1.29 parties’ intentions, 1.30 significance, 1.29 inconsistencies with special conditions, 1.36 incorporation contracts not yet concluded, from, 1.37 general criteria, 1.34–1.35 inconsistencies between terms and conditions, 1.36 Incoterms 2020, of, 1.38 international trade, 1.35 introduction, 1.31 risks, 1.32 rules, 1.33 parties’ intentions, 1.30 reservation of right to pass property conditional appropriation, 5.13 considerations, 5.13 generally, 5.13 legal effect of clause, 5.16 nature of clause, 5.13–5.14 purpose of clause, 5.15 range of clause, 5.15 significance, 1.29 Third parties transfer of property, 5.2 ‘Through’ bill of lading document of title, as, 2.4 Title to sue, see Right to sue carrier ‘To order’ delivery orders transferability, 3.14 Transfer of property appropriation, by declaration of shipment, 5.12 exhaustion, by, 5.11

344

Index Transfer of property – contd appropriation, by – contd generally, 5.9 introduction, 5.7 meaning, 5.10 notice, 5.12 ‘unconditional’, 5.9–5.11 ascertainment, and commingled goods, 5.8 exhaustion, by, 5.6 insolvent sellers, 5.8 necessary but not sufficient to pass property, 5.7 necessary for property to pass, 5.6 bank named as consignee, 5.22 bill of lading, under introduction, 5.13, 5.17 made out to order of buyer, where, 5.19 made out to order of seller, where, 5.18 payment ‘cash against documents’, 5.20 presumptions as to intention, 5.17 commingled goods, 5.8 ‘conditional’ appropriation, 5.13 contractual reservation of right, by conditional appropriation, 5.13 considerations, 5.13 generally, 5.13 legal effect of clause, 5.16 nature of clause, 5.13–5.14 purpose of clause, 5.15 range of clause, 5.15 distinguished from transfer of risk,  4.2 exhaustion appropriation, 5.11 ascertainment, 5.6 express reservation of right, by contractual clause, 5.13–5.16 issue of bill of lading, 5.17–5.20 fraud, and, 5.1 insolvency, and, 5.1 insolvent sellers, 5.8 issue of bill of lading, by generally, 5.17 introduction, 5.13 made out to order of buyer, where, 5.19

Transfer of property – contd issue of bill of lading, by – contd made out to order of seller, where, 5.18 payment ‘cash against documents’, 5.20 presumptions as to intention, 5.17 letters of credit, and bank named as consignee, 5.22 introduction, 5.21 misuse of documents, and, 5.1 no express term, where appropriation, 5.7, 5.9–5.11 ascertainment, 5.6–5.7 declaration of shipment, 5.12 introduction, 5.5 ‘specific goods’, 5.5 ownership, and, 5.2–5.3 payment ‘cash against documents’, where, 5.20 possession, and, 5.2–5.3 presumptions where no express term appropriation, 5.7, 5.9–5.11 ascertainment, 5.6–5.7 declaration of shipment, 5.12 introduction, 5.5 sale or return terms, 5.5 ‘specific goods’, 5.5 property distinguished from possession, 5.2– 5.3 introduction, 5.1 significance in trade, 5.1 Romalpa clause, by introduction, 5.13 legal effect, 5.16 nature, 5.14 purpose, 5.15 range, 5.15 sale or return terms, on, 5.5 SOGA 1979, under contractual reservation of right, 5.13–5.16 intention of parties, 5.4 issue of bill of lading, 5.17–5.20 no express term, 5.5–5.12 ‘specific goods’, 5.5 third party position, 5.2 unascertained goods, 5.6

345



 Index Transfer of property – contd ‘unconditional’ appropriation, by declaration of shipment, 5.12 exhaustion, by, 5.11 generally, 5.9 meaning, 5.10 Transfer of risk bailment, 4.15–4.16 contractual variations construed restrictively, 4.8–4.11 delay caused by shipper, 4.13–4.14 derogation from SOGA 1979, and contractual variations construed restrictively, 4.8–4.11 generally, 4.3 landed weight, 4.9 out-turn quantity, 4.9 reasons for risk passing, 4.4–4.6 re-endorsing bill back to seller, 4.11 retroactive transfer, 4.5–4.6 risk passes if seller performed other duties, 4.7 seller retains rights against carrier, 4.11 stipulated arrival date, 4.10 deterioration of goods, 4.23 generally, 4.2 introduction, 4.1 landed weight, 4.9 late discharge, 4.14 late shipment, 4.13 notice to insure to be given, 4.19– 4.22 out-turn quantity, 4.9 passes if the seller has performed other duties, 4.7 passing ‘on or as from shipment’, 4.4– 4.6 procuring a reasonable contract of carriage, 4.17–4.18 reasons for risk passing, 4.4–4.6 re-endorsing bill back to seller, 4.11 retroactive transfer, 4.5–4.6 right to sue carrier COGSA 1992, under, 4.24–4.31 implied contract, under, 4.32–4.35 negligence, in, 4.36–4.37 right to sue carrier in negligence damages, 4.37–4.41 generally, 4.36

Transfer of risk – contd right to sue carrier under COGSA 1992 bills made out to order of named consignee, 4.28 bills made out to shipper’s order, 4.29–4.30 delivery orders, 4.25 endorsement by shipper, 4.27–4.31 generally, 4.24 method of endorsement of bills, 4.31 order bills, 4.27 sea waybills, 4.25 straight bills, 4.25 transferable bills, 4.26 right to sue carrier under implied contract Brandt v Liverpool Brazil, 4.33 damages, 4.37–4.41 generally, 4.32 limitations, 4.34–4.35 seller retains rights against carrier, 4.11 shipment sales, in derogation from general rule, 4.3– 4.11 special rules, 4.12–4.23 special rules under SOGA 1979, and bailment, 4.15–4.16 delay caused by shipper, 4.13–4.14 deterioration of goods, 4.23 introduction, 4.12 late discharge, 4.14 late shipment, 4.13 notice to insure to be given, 4.19– 4.22 procuring a reasonable contract of carriage, 4.17–4.18 stipulated arrival date, 4.10 Transferability bills of lading, and, 3.3 combined transport documents, 3.11 definition 3.5 delivery orders, 3.14 documents of title, and generally, 3.7 introduction, 3.5 endorsed ‘to order’ delivery orders, 3.14

346

Index Transferability – contd Factors Act 1889, in, 3.7 generally, 3.2 Hague-Visby Rules, 3.6 introduction, 3.1 meaning, 3.5 multimodal transport documents,  3.11 negotiability, and generally, 3.5 introduction, 3.1 meaning, 3.5–3.6 ‘non-transferable’, 3.6 ownership, and, 3.5 ‘received for shipment’ bills consequences, 3.13 generally, 3.12 introduction, 3.11 relevant documents, 3.8–3.14 right of delivery, 3.4 sea waybills, and generally, 3.8–3.9 tender under contract of sale,  3.10 ship’s delivery orders, 3.14 SOGA 1979, in, 3.7 ‘straight’ bills of lading, and generally, 3.8–3.9 tender under contract of sale,  3.10 terminology, 3.1 ‘to order’ delivery orders, 3.14 Transhipment contract of sale allows, 7.27 contract of sale prohibits, 7.28 contract silent, 7.29 introduction, 7.26 letters of credit, and, 7.30 meaning, 7.26

U Unascertained goods transfer of property, 5.6 Unconcluded contracts incorporation of terms, 1.37 ‘Unconditional’ appropriation declaration of shipment, 5.12 exhaustion, by, 5.11 generally, 5.9 meaning, 5.10 Uniform Customs & Practice (UCP) 600 Rules bills of lading, and, 6.3 introduction, 1.3 Unpaid banks delivery of goods banks’ security, 2.62 bills made out to buyer’s order, 2.65 introduction, 2.61 letters of trust, 2.66 limitations of pledge, 2.63 pledge by applicant buyer, 2.62– 2.63 shipping document made out to bank, 2.64 security, 2.62 Unpaid sellers delivery of goods buyers’ position, 2.57–2.58 carriers, against, 2.55–2.56 generally, 2.54 ‘order’ bills, under, 2.55 other documents, under, 2.56 W ‘Weight and quantity unknown’ clause introduction, 6.23 letters of credit, and, 6.27 Libeau Wood v H Smith, 6.25–6.26 The Galatia, 6.24–6.26

347