In a recent judgement by the English House of Lords* it was decided that the carriers’ liability in respect of delivery of cargo under a non-negotiable (straight) bill of lading should by treated as a “document of title” and be subject to the English Hague-Visby Rules.
Background
The vessel RAFAELA S carried a cargo of printing machinery from South Africa to the US via the English port of Felixstowe. The cargo was subsequently damaged during the voyage from England to the US. Proceedings were commenced in England by cargo interests, and the real issue for the parties was whether the package limitation in the Hague-Visby Rules as incorporated into English law applied, or whether the carrier could rely on the lower limits as applied in the US. The cargo was carried under the carrier’s own bill of lading that named the consignee in the consignee box, and furthermore contained a clause which expressly required presentation for delivery.
The arbitrators and the Court of first instance found in favour of the carrier, following the traditional view that where a straight bill of lading is made out to a named consignee such a bill of lading is not “a bill of lading or any similar document of title”. This Decision was reversed by the Court of Appeal. It concluded that although the relevant bill of lading was non-negotiable, i.e. not to order but “straight”, it was nevertheless a document of title and as a result subject to the Hague-Visby Rules incorporated into English law. This meant that the carriers’ liability was subject to the higher package and unit limitation of the Hague-Visby Rules as applied under English law. Consequently, a higher limitation regime in the region of USD 150,000 was applicable as opposed to the position in the US restricting the claim to USD 2,000.
For a detailed analysis of the Court of Appeal decision please refer to SKULD’s Legal News 27.05-2003: “Delivery under straight or non-negotiable bills should they still be in use?” by Sara Gillingham.
The House of Lord’s decision
As stated, the House of Lords has now upheld the Court of Appeal’s ruling. The reasoning of the House of Lords for upholding the Court of Appeal decision is as follows:
- The document ”appeared” to be a bill of lading and the House of Lords were hesitant to allow the issuer of the document (i.e. the carrier) to object to the description contained in their own bill of lading.
- The terms of the document were more closely connected to that of a classical bill of lading as opposed to that of a seaway bill. (E.g. more than one original, a requirement for production for delivery, transfer of contractual rights to a third party albeit the named consignee).
- The Hague-Visby Rules were designed to protect parties who were not involved in negotiating the contract of carriage, but who later became bound by them and the term “bill of lading” should therefore not be given a special, narrow meaning.
- Effect should be given so far as possible to the international consensus expressed in the Hague-Visby Rules and not to any inconsistent rules of domestic law.
- The presentation of the straight bill of lading for delivery of the cargo would be necessary even without any express stipulation since the House of Lords ruled it to be a document of title.
Applicability for the purposes for the Hague-Visby-Rules
In order to support the consideration of commercial efficacy, a carrier and a buyer to whom the seller has consigned the cargo must ensure that the legal position is made clear in the express terms of the contract of carriage.
The House of Lords have clearly stated that a straight bill of lading is a document of title within the meaning of article 1 (b) of the Hague-Visby Rules and hence within section 1 (4) of the Carriage of Goods by Sea Act 1971 when looking at a case for limitation of liability only.
The bill of lading in question was issued by the carrier back in 1990. Today the dispute would be subject to the “new” Carriage of Goods by Sea Act 1992, which entered into force on 16 September 1992. Although the House of Lords considered it plain that a straight bill of lading is not a bill of lading for the purposes of the Carriage of Goods by Sea Act 1992**, they went on to say that the issue for the RAFAELA S was not whether the straight bill of lading is a document of title under the 1992 Act and/or at Common Law (probably not), but if it is a “bill of lading or any similar document of title” for the purposes of the Hague-Visby Rules.
That question, however, remains unanswered after the RAFAELA S, but even under the new 1992 Act it seems unlikely that English Courts would decide differently as regards applicability of the Hague-Visby Rules if a carrier was simply seeking to limit his liability.
The House of Lords decision should, however, be read with some caution when looking at issues outside the framework of applicability of the Hague-Visby Rules.
One important commercial aspect of the case is whether presentation of a straight bill of lading is required for delivery of cargo under the new 1992 Act. Cargo owners may argue that because the form being used enables carriers to switch between a negotiable and/or non-negotiable (straight) bill they can easily be perceived as a “bill of lading or any similar document of title”. It would therefore be prudent for carriers who wish to avoid this uncertainty to expressly contract out of this presentation requirement, e.g. “Surrender of a bill of lading is not necessary in exchange of the goods”.
It should be noted that if a straight bill of lading expressly states that production is not needed, it has been argued that any Clause Paramount should only apply when the bill of lading is used as a negotiable document. However, a standard Clause Paramount is generally inserted into the bill of lading either directly in the bill of lading, or via the charter party for the benefit of the carrier, enabling him to rely on normal defences in the Hague-Visby Rules and, as such, it should be made clear that any Clause Paramount should apply even if the bill issued is a straight bill of lading. This would also be required by the carrier’s club to avoid prejudicing his club cover.
Recommendation to Members
If members are engaged in trades where the commercial reality is that negotiable bills of lading (to order) are in fact not needed due to either short sea voyages or because cargo is not being transferred or carriers are trading with own cargoes, members should consider issuing seaway bills instead of non-negotiable (straight) bills.
As members are aware, club cover requires that delivery of cargo carried inter alia under a non-negotiable bill of lading, should be made to the named person in such a bill of lading and to no other. Members are therefore best advised to insist that non-negotiable (straight) bills should be produced in order to obtain delivery of cargo. After the RAFAELA S, mere proof of identity of the named consignee may no longer be sufficent. Furthermore, failure to insist on such presentation could lead to higher risk of misdelivery to a person other than the named, which again could jeopardise club cover.
With the several different forms of straight bills/non-negotiable bills and negotiable bills of lading being used by members in the commercial daily life, these should be reviewed together with the charter parties they are issued under. Members may wish to consult Skuld regarding the wording of such bills of lading before delivering cargo without the production of the originals. For further information please contact your local Syndicate who can assist you in that respect.
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* 2005 All ER (D) 236
** 2005 All ER (D) 236, Para. 22