Club cover requires delivery of cargo under a non-negotiable bill of lading or waybill to be made to the person named in that document and no other. If not a claim for wrongful delivery could be made.
It was commonly believed that in the case of a non-negotiable B/L it was not necessary for the original B/L to be produced if the named consignee could properly identify themselves. That is no longer the legal position in English jurisdictions (and has not been the case in several other jurisdictions either namely Dutch, and French jurisdictions).
From time to time we are asked how to ensure that delivery under a non-negotiable B/L can go ahead:
- if the named person cannot produce the bill (or if no bill has in fact been issued)
- or if a different person presents the bill.
Some recent decisions in England and Singapore show how it can go wrong (and so how expensive it can be) if care is not taken.
Another important result of two of these cases, as far as non-negotiable bills are concerned, is the loss of owners’ ability to limit liability to the lower amount in the Hague Rules even where the Hague Visby Rules apply compulsorily. This will affect all those using straight bills as part of their trade and is discussed further below.
The terms "straight B/Ls" and "non-negotiable B/Ls" are here used interchangeably. The term "non-negotiable" often causes confusion because it is actually used to describe the bill as being non-transferable.
When is a bill of lading a straight bill?
In The Happy Ranger [2002] 2 Lloyd’s Rep 357, the Court of Appeal decided that the bills of lading in question were not straight bills – or rather they would have been straight bills had they been issued. No bill had in fact been issued, but it was sufficient that its issue was contemplated because the carrier’s regular form of bill was incorporated into the charterparty. A straight bill of lading has actually no English law definition but the Court approved of the US term: a straight bill is one where the goods are consigned to the order of a specific person named in the bill or bearer. In this case the consignee was named in the consignee box. However, printed words on the front of the bill referred to delivery of the goods to the "consignee or to his or their assigns". The Court held that there was nothing in the consignee box or anywhere else on the bill to show that the words "consignee or to his or their assigns" were not to have effect. The intention to make it a straight bill could not be assumed simply because a named consignee appeared in the consignee box. In other words to make the bills straight, either the printed words should have been deleted or the consignee box should have clearly stated that the printed words did not apply.
In The Chitral [2000] 1 Lloyd’s Rep 529, the printed words on the front were similar but the box in which the consignee was named said "If order state notify party" and no such notify party was stated. The Court considered the bill of lading form capable of being used as either a straight bill or as a negotiable bill with delivery to the consignee or his assigns where applicable. In this case the printed words were not applicable because no notify party had been stated and so the bill was a straight bill.
A similar conclusion was reached in the first instance decision (later confirmed by the Court of Appeal) of The Rafaela S [2002] 2 Lloyd’s Rep 403. Here the consignee box stated "Consignee (B/L not negotiable unless "order of")" and only the consignee’s name was inserted in the box. The bill was therefore a straight bill.
In Peer Voss v APL Co Pte Ltd [2002] 2 Lloyd’s Rep 707 the Consignee box contained the printed words "(Name and Full Address/Non-Negotiable Unless Consigned to Order)(Unless provided otherwise, a consignment "To Order" means to Order of Shipper.)". The Singapore Court of Appeal held that a bill of lading bearing the name of the buyer in the Consignee box but without the words "to order" was also a straight bill of lading.
Therefore, a bill of lading is straight or non-negotiable when:
- the consignee is named, and
- there are no other words (even in printed clauses) indicating the ability to transfer or endorse the bill (e.g. delete "to order", "as duly endorsed" etc).
Does a straight or non-negotiable bill have to be presented to obtain delivery?
The answer is yes, if the bill says so.
In Peer Voss v APL Co Pte Ltd (cited above), the straight B/L also provided for a set of 3 originals to be issued by the carrier and "upon surrender to the Carrier of any one negotiable bill of lading, properly endorsed, all others shall stand void". The seller held all 3 sets because the buyer had not paid. APL released the cargo without production of any of the B/Ls and were sued by the seller for wrongful delivery. The Court confirmed that a non-negotiable B/L is not the same as a sea waybill – the parties had not removed the provision for delivery upon presentation (the words "upon surrender" being critical here). It is clear that, in the case of sea waybills, their presentation is not required where the consignee named in the bill can identify himself. The Court held that clear words are needed to imply that the parties can treat a non-negotiable B/L as if it were a sea waybill (in order to skip presentation of the bill). The submission by APL that a non-negotiable B/L does not require presentation to obtain delivery was therefore rejected.
Therefore, an original non-negotiable B/L still needs to be produced to obtain delivery unless:
- the printed words have been deleted and
- it is clear from the document that production is not required.
(Caution still needs to be exercised regarding any notifications from the seller that he has not been paid.)
This is true not only in English jurisdictions but also in Dutch, and French jurisdictions – the Court of Appeal in The Rafaela S (discussed below) helpfully runs through the position in these jurisdictions too.
Higher limits - Hague Visby Rules can now apply to straight B/Ls
It was commonly believed that the Hague Visby Rules did not apply to straight or non-negotiable B/Ls because they did not fit the definition of a bill of lading within those Rules. The practical effect was that Owners could rely on the lower package limitations in the Hague Rules - normally incorporated into the B/L by a Paramount Clause.
Most Paramount Clauses incorporate the Hague Rules into the B/L as a matter of contract but allow for Hague-Visby Rules to apply where they apply compulsorily (e.g. because of place of shipment). The obvious advantage to carriers is that the same regular form of bill, including a Paramount Clause, can be used for all trades and that the bills can easily be made into straight bills by naming the consignee and deleting any references "to order or assigns".
The advantage of straight bills being (wrongly as it now turns out) that:
- Only the lower Hague Rules limit would apply. For example, high value project cargo shipped on straight bills could have a package limitation of £100 instead of several million dollars.
- There was no need to present them on delivery (as already discussed above).
Both are expensive mistakes to make.
The Court of Appeal changed matters when they expressed the view in The Happy Ranger [2002] 2 Lloyd’s Rep 357 that a straight bill of lading would be a bill of lading or similar document of title within the meaning of the Hague and Hague-Visby Rules. This was in disagreement with most textbooks on the point.
This expression of opinion has now been unanimously confirmed by the Court of Appeal in The Rafaela S (16 April 2003). (At the time of writing this decision has only been published on the internet and is otherwise available upon request from SKULD Defence Services. The judgment relates to a preliminary issue of an ongoing arbitration and is the subject of a final appeal to the House of Lords).
As The Rafaela S judgment presently stands, a straight or non-negotiable bill of lading is a bill of lading or similar document of title to which the Hague Visby Rules apply. Therefore, in a situation where the Hague Visby Rules apply compulsorily (e.g. as a result of place of shipment), the higher package limitation allowed for by the Hague Visby Rules will now also apply to straight bills.
More importantly, the decision also shows that the common assumption that a straight bill is the same as a sea waybill is not correct (thereby agreeing with the Singapore Court of Appeal in Peer Voss v APL Co Pte Ltd [2002] 2 Lloyd’s Rep 707 as discussed above).
Our advice to Members
- A bill of lading is only straight or non-negotiable when both of the following conditions are fulfilled:
- the consignee is named, and
- there are no other words (even in printed clauses) indicating the ability to transfer or endorse the bill (e.g. delete "to order", "as duly endorsed" etc). - Best practice to prevent loss would be to insist that non-negotiable B/Ls do need to be produced in order to obtain delivery of cargo (since apparently insignificant words in small print could easily be overlooked). Failure to insist on presentation could jeopardize club cover so Members should consult SKULD Defence Services regarding the wording on the non-negotiable bill of lading before delivering cargo without its production. A letter of indemnity for non-production of the bill would be another alternative, in which case the standard format recommended by the International Group should be used (copy available from SKULD Defence Services). It should be remembered that enforcement of LOIs very much depends on the ability or willingness of the guarantor to pay and such loss is not recoverable from the Association.
- Higher package limitations will now apply to cargoes shipped from or to countries where the Hague Visby Rules apply. If the cargo could be shipped under a sea waybill instead of a straight bill then the lower Hague Rules limits would apply. (The Hague Visby Rules do not apply to sea waybills).
If Members are engaged in trades where:
- production of bills is a problem (e.g. short sea voyages) or
- Members are shipping cargo which will not be transferred or
- no B/L is in fact intended to be issued (e.g. own cargo)
then sea waybills should be used instead of non-negotiable B/Ls. There are several regular forms of sea waybill available from BIMCO or from the Association.
In any event, previous practice where the same form of bill of lading is used for both negotiable and non-negotiable bills and is attached to charterparties should be reviewed. A regular form for each type should be devised, or, if not, then clear wording is needed in the charterparty to distinguish when the bill should be negotiable and when it should be non-negotiable. This is especially important where no transfer of cargo is envisaged (and particularly for high value cargo).
As the Court of Appeal commented, Carriers should not be using non-negotiable B/L forms when in fact they intend the bill to be used like a sea waybill.