Category: Carriage of Goods

What’s your contract? What’s your package limitation?

Poralu Marine Australia Pty Ltd v MV Dijksgracht – [2023] FCAFC 147 is a recent decision  from the Federal Court of Australia on identifying what constitutes the contract of carriage of goods by sea, and what terms are applicable to that contract. It will not necessarily be the transport document that is issued on loading, in this case a sea waybill. The cargo of 23 pontoons and 11 pallets was carried from Ireland to Australia and it was alleged that three pontoons were discharged damaged having been loaded in sound condition. Poralu commenced two actions for damages arising from the alleged damage to three of the pontoons, both in bailment and the tort of negligence. The first action was in rem against the vessel and its owner, said to be Dijksgracht CV (DCV), a Netherlands company. The second was an action in personam against Spliethoff Transport (ST) as carrier and Rederij Dijksgracht (RD), said to be the shipowner.

There were various contenders for the contract of carriage by sea; the second recap email; the booking note; the sea waybill. At first instance, [2022] FCA 1038, Stewart J found that the contract was concluded in the booking note which applied the law of the Netherlands and stated specifically that liability was limited to £100 lawful money of the UK per package or unit. The Hague-Visby Rules did not apply to the contract of carriage and accordingly the package limitation was the very low figure of £100 in sterling. By virtue of the Himalaya clause in the bill of lading the shipowner was able to rely on the limitation figure in the contract of carriage.

On appeal the Federal Court of Australia has upheld the decision that the shipowner could rely on the Himalaya clause in the standard form of bill of lading which formed part of the contract of carriage. However, it overruled the decision as to what constituted the contract of carriage and what was the applicable limitation of liability thereunder.

The Federal Court found that the contract of carriage was contained in the second recap email, which preceded the booking note.  This specified English law and was subject to the terms of the contemplated bill of lading which contained clause 3(a) a clause paramount which reads:

“1    Except in case of US Trade, the Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels, 25th August 1924, as enacted in the country of shipment, shall apply to this Bill of Lading.

2    If no such enactment is in force in the country of shipment, the articles I-VIII inclusive of the said Convention shall apply.

3    In trades where the International Brussels Convention 1924 as amended by the Protocols signed at Brussels on 23 February 1968 and 21 December 1979 (the Hague-Visby Rules) apply compulsorily, the provisions of the Hague-Visby Rules shall be considered incorporated in this Bill of Lading.

….

5    If the Hague Rules are applicable otherwise than by national law, in determining the liability of the Carrier, the liability shall in no event exceed £100 (GBP) sterling lawful money of the United Kingdom per package or unit.”

 The fact that the contract contemplated the issue of a bill of lading, even though a sea waybill was eventually issued, was enough potentially to engage the Hague-Visby Rules, as held by the English Court of Appeal in The Maersk Tangier [2018] EWCA Civ 778. As for the sea waybill, that was a mere receipt.  

The contract did not fall under Article 10(a) as Ireland, where the goods were loaded, was not a Contracting State, but did fall under Article 10(c) by virtue of paragraph 1 of the clause paramount in the contemplated bill of lading. Ireland had enacted the Hague-Visby Rules domestically and therefore, in line with the decision of the English Court of Appeal in The Superior Pescadores [2016] EWCA Civ 101, involving a similarly worded clause paramount, the reference to “the Hague Rules…as enacted in the country of shipment” referred to the “Hague-Visby Rules as amended by the 1979 Protocol”.  As a result, those Rules applied to the contract of carriage so that the relevant package limitation would be calculated in accordance with the operation of the SDR Protocol unless, at the trial, Art 4(5)(e) was found to apply (namely, because the damage to the pontoons 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).

Between discharge and delivery. What is the sea carrier’s responsibility?

What are the responsibilities of an ocean carrier in respect of damage to cargo that is sustained after discharge and before delivery? That was the question at issue in JB Cocoa SDN BHD & Ors v Maersk Line AS (The Maersk Chennai).  [2023] EWHC 2203 (Comm) (05 September 2023).  The vessel carried cocoa beans in containers from Lagos to Tanjung Pelepas, Malaysia. Discharge was on 1 October 2017 but the cargo was not collected until about 28 November 2017 when it was found to be suffering from condensation and mould damage which had occurred during the period between discharge and delivery. JB Cocoa, and their insurers, claimed both as lawful holder and indorsee of the bill of lading, which incorporated the Hague Rules, and also in negligence, in an attempt to claim free of the contractual provisions of the bill of lading.

First, on title to sue , JB Cocoa and their subrogated insurers had title to sue as the lawful holder of the bill of lading under COGSA 1992, but JB Cocoa were not the owner of the goods at the relevant time and could not sue in negligence. Even if they had been able to sue in negligence the claim would fail on the basic principle that there is in general no liability in negligence for omissions and no positive duty to intervene to prevent loss. The claimants did not allege that the defendant did anything to damage the cocoa beans but failed to deliver the cocoa beans in good condition because it left them in their containers and failed to take steps to prevent their deterioration in the containers. The answer to this would be to rely on voluntary assumption of risk in respect of more onerous responsibilities which was not pleaded and could not plausibly have been alleged on any basis other than a bailment subject to the terms of the bill of lading.

On the substantive claim, HH Judge Keyser KC started by reiterating the Court of Appeal’s statements in The Giant Ace [2023] EWCA Civ 569,that the Hague, and Hague-Visby Rules, only operated up to the point of discharge, although the time bar in art III (6) applied to misdelivery claims where delivery had been made after discharge. The carrier’s obligations in respect of the period between discharge and delivery were to be determined by the terms of the bill of lading.

The relevant terms of the bill were contained in clauses 5 and 22.

“5. Carrier’s Responsibility: Ocean Transport

5.1 Where the Carriage is Ocean Transport, the Carrier undertakes to perform and/or in his own name to procure performance of the Carriage from the Port of Loading to the Port of Discharge. The liability of the Carrier for loss of or damage to the Goods occurring between the time of acceptance by the Carrier of custody of the Goods at the Port of Loading and the time of the Carrier tendering the Goods for delivery at the Port of Discharge shall be determined in accordance with Articles 1-8 of the Hague Rules save as is otherwise provided in these Terms and Conditions. These articles of the Hague Rules shall apply as a matter of contract.

5.2 The Carrier shall have no liability whatsoever for any loss or damage to the Goods, howsoever caused, if such loss or damage arises before acceptance by the Carrier of custody of the Goods or after the Carrier tendering the cargo for delivery. Notwithstanding the above, to the extent any applicable compulsory law provides to the contrary, the Carrier shall have the benefit of every right, defence, limitation and liberty in the Hague Rules as applied by clause 5.1 during such additional compulsory period of responsibility, notwithstanding that the loss or damage did not occur at sea.”

“22. Notification, Discharge and Delivery

22.1 Any mention in this bill of lading of parties to be notified of the arrival of the Goods is solely for information of the Carrier. Failure to give such notification shall not involve the Carrier in any liability nor relieve the Merchant of any obligations hereunder.”

HH Judge Keyser KC held that

“The first sentence of clause 5.1, taken together with the definition of “Carriage” in clause 1 but otherwise by itself, would suggest that the carrier is responsible for all handling of the goods and other services provided in respect of the goods at the port of discharge, even if the handling or other services came after discharge. However, the second sentence of clause 5.1 has the effect that the carrier’s liability for loss of or damage to the goods between two points in time—acceptance of custody at the port of loading, and tender for delivery at the port of discharge—shall be determined in accordance with Articles I to VIII of the Hague Rules. The Hague Rules do not regulate the liability of the carrier in respect of any period before loading or after discharge from the vessel; the references in Article II to “custody” and “care” relate to the period prior to discharge: [96]”

Turning to cl.5(2) the first sentence meant that the carrier is liable for loss and damage only within the limits of the Hague Rules, that is, from loading to discharge. Prior to and after those points in time, the goods are at the risk of the shipper or the consignee as the case may be. However, if the temporal delimitation of the carrier’s liability is ineffective in law, the defences, limitations etc. under the Hague Rules will apply to this additional period of liability as they apply to the period governed by the Rules themselves.

HH Judge Keyser KC then rejected the argument that the failure to give notification of arrival under cl. 22(1) amounted to a failure to tender the goods for delivery and rendered the carrier subject to an ongoing obligation to take reasonable care of the goods. The carrier was not obliged to serve an arrival notice at all and therefore such a notice was not an integral part of delivery or of tender of delivery.

If the carrier had remained responsible, HH Judge Keyser KC would have held it liable for the damage to the cocoa beans on the grounds that it failed to take reasonable care of them by opening the container doors to provide ventilation. However, as the carrier was not responsible for the goods after discharge it was under no duty to open the container doors.

So, for owners of containerised goods damaged between discharge and delivery, look closely at the terms of your bill of lading. Terms and conditions apply.

However, a couple of points to bear in mind. An exception against “loss and damage” after discharge won’t protect the carrier against liability for misdelivery East West Corp. v. DKBS 1912 [2003] 1 Lloyd’s Rep 239. Second, where the ocean carrier supplies the container, the start of loading under the Hague Visby Rules can begin earlier than loading onto the vessel. In Volcafe it was the start of stuffing the container at an inland facility. Similarly, ‘discharge’ can be extended to the point of delivery. In Australia in Seafood Imports Pty Ltd v ANL Singapore Pte Ltd [2010] FCA 702 it was held that where a refrigerated container was supplied by the carrier, the duty under the Hague-Visby Rules to discharge the goods properly and carefully extended to ensuring that the refrigerated container in which they had been carried did not have a propensity to become stuck in defrost mode while at the port terminal and before the goods could reasonably be expected to be removed from the container.

EU top court: no avoiding the bar on intra-Europe ASIs by bringing a damages claim instead. But how far does it matter post-Brexit?

Don’t say it too loudly, especially when there’s a European listening, but yesterday’s CJEU decision in The Alexandros T (C-590/21) [2023] EUECJ C-590/21 might make some English lawyers a bit more relieved that Brexit happened. Put simply, the EU court has held that just as under EU law you can’t get an anti-suit injunction in an EU court preventing suit elsewhere in Europe, you equally can’t sue a litigant for damages for bringing suit there in breach of contract. But this will not affect any ost-2021 proceedings here.

The Alexandros T, a Capesize bulker of 172,000 dwt, will be familiar to most readers. She sank off South Africa in 2006, taking with her 26 crew and a large cargo of Brazilian iron ore destined for China. Her hull insurers were initially not entirely convinced about the resultant claim against them, but around Christmas 2007 paid a sum in settlement under an agreement governed by English law. That agreement provided for a release of the underwriters and everyone associated with them and contained a London jurisdiction clause in respect of any dispute.

Little did the underwriters know that this was not the end, but – this being well before Brexit – rather the beginning of a massive game of juridical Euro-ping-pong.

Four years after the settlement, Alexandros T’s owners Starlight brought proceedings in Greece against the underwriters and also Charles Taylor, a marine insurance consultancy that had acted for them. They claimed big money on the basis that the underwriters and others had indulged in skulduggery in defending the claim, and had acted tortiously in blackening Starlight’s name and causing it serious losses.

Unable to get an anti-suit injunction because of settled EU law based on the full faith and credit principle, the underwriters countered by suing Starlight in England for damages for breach of the settlement agreement (i.e. the costs of defending, and anything they were forced to pay under, the Greek suit). Starlight attempted to invoke the Greek proceedings to stop these latter proceedings in their tracks under the lis alibi pendens provisions of what was then Art.27 of Brussels I (now Art.29 of Brussels I Recast). However they failed, it being held by the Supreme Court that the claims were merely related and did not involve the same subject-matter, and that the new claims should be allowed to go forward. (See The Alexandros T [2013] UKSC 70; [2014] 1 Lloyd’s Rep. 223.) The underwriters duly proceeded, and Burton J’s judgment giving damages against Starlight was upheld by the Court of Appeal in July 2014 in Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG [2014] EWCA Civ 1010; [2014] 2 Lloyd’s Rep. 544.

Having got this judgment, the underwriters took the battle to the enemy and sought to have it recognised in Greece. The Piraeus Court of Appeal refused recognition, holding in 2019 that it would be manifestly contrary to public policy under Art.34 of Brussels I (Recast Art.45). The Areios Pagos, the Greek Supreme Court, sought the opinion of the CJEU.

Yesterday that court, in a short (by EU standards) judgment, went against the underwriters. It said, first, that a claim for damages for suing in another EU court, being dissuasive of the maintenance of EU proceedings and aimed at impeding them, was no more permissible under the Brussels I scheme than a claim for an anti-suit injunction (see [25]). It then went on to say that this factor provided ample justification for a court in the EU to say that to enforce or recognise a judgment arising out of such a claim was manifestly contrary to EU (and hence national) public policy. It therefore gave a green light to the Greek courts to refuse recognition of the 2014 judgment, something which will no doubt formally take place in the not too distant future.

Fairly predictable was the holding that claims for damages for suing in an EU court were prohibited by Brussels I, contrary to English decisions the other way – notably West Tankers Inc v Allianz SpA [2012] EWHC 854 (Comm); [2012] 2 Lloyd’s Rep. 103. A combination of post-Brexit Schadenfreude, the court’s highly sensitive political antennae, and its ingrained instinct for centralisation of power Brussels-ward whenever possible, saw to that. But in respect of post-Brexit proceedings it is not now very important: such actions for damages continue available in England whatever Brussels says, and the betting must now be that the UK will never again sign up to any jurisdictional framework in the Brussels-Lugano mould.

That leaves the holding that judgments obtained here for damages are not portable to Europe by way of recognition. This raises two issues.

First, it will make the enforcement of judgments like that in The Alexandros T slightly harder – though perhaps this difficulty should not be exaggerated, since most of those involved in international trade will at some time want to deposit monies in London which can then be the subject of execution proceedings.

Secondly, there is a nice issue whether the EU position would survive a UK ratification of the 2019 Hague Judgments Convention, which by Art.7(1)(c) contains a similar public policy let-out. You might think it did: but matters aren’t as simple as that. Unlike Brussels I, the Hague Convention is not an EU instrument and it is therefore not automatically subject to overriding EU public policy considerations to the same extent. It is certainly possible that the EU would be in breach of Hague if the CJEU decided that judgments given in non-EU courts for damages for suing in EU courts were automatically excluded from its ambit as they are from Brussels I. We’ll just have to wait and see.

Limitation for charterers — the Court of Appeal makes life a little easier

The Limitation Convention 1976 isn’t the best drafted of maritime conventions, but the Court of Appeal this morning in The MSC Flaminia (No 2) [2023] EWCA Civ 1007 made a very good stab at cutting through the verbal undergrowth to reach a clear and sensible result.

The background first, for those who don’t know it. In 2012 the MSC Flaminia, a 86,000 dwt container vessel owned by Conti and time chartered to MSC, suffered a disastrous fire while en route from the US to Antwerp when certain containerised chemicals ignited. She received salvage services and was towed dead to Wilhelmshaven, where most of her cargo was discharged and where necessary decontaminated or destroyed. Dirty firefighting water was also offloaded and sent to Denmark to be cleaned up. Further cleanup operations took place in Romania and Denmark; the vessel was then repaired in Romania, and finally returned to service in mid-2014.

All this cost big money. Her owners Conti, having been unsuccessfully pursued by cargo interests in the US, claimed against the time-charterers to recover the expenses of these operations on the basis that they were responsible for the shipment of the dangerous chemicals involved. Arbitrators awarded some $200 million, whereupon MSC sought to limit, the relevant limitation figure being about 25 million SDRs.

Some of Conti’s claims were indubitably outside the 1976 regime limitation, notably the direct cost of repairs (clear since The CMA Djakarta [2004] EWCA Civ 114; [2004] 1 Lloyd’s Rep. 460). But this left the offloading and cleanup costs: were they limitable or not? The Convention was not clear on this. Article 1(2) extended the shipowner’s right to limit to a “charterer, manager and operator of a seagoing ship.” Article 2(1) allowed limitation for personal injury and cargo claims (Article 2(1)(a)), passenger and cargo delay claims (Article 2(1)(b)), tort claims by third parties (Article 2(1)(c)). It then, in its English incarnation, went on to cover “claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship” (Article 2(1)(e)) and “claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures” (Article 2(1)(f)). How these all fitted together, however, was not very clear.

The Admiralty judge, Andrew Baker J, denied limitation to MSC (see here, noted here in this blog). True, he said, there was no absolute bar on limitation in respect of claims arising between charterers and owners other than for damage to the vessel: indeed there could not be, since clearly owners had to be able to limit if they found themselves at the sharp end of cargo claims from charterers. But limitation was still impossible in this case because, even if dressed up as a series of claims for offloading cargo, rendering it harmless and the like under Article 2(1)(e), Conti’s claim was in substance a single one for damage to the vessel and its consequences, which was exactly what The CMA Djakarta said was entirely outside the limitation regime.

MSC, or rather its P&I Club, fared no better in the Court of Appeal. But here the reasons, given in a pellucid judgment by Males LJ, were slightly different. The rule he advanced about charterer-owner claims was simple and elegant, and sufficed to dismiss the appeal. Charterers were in a special position, different from that of owners. They could not limit at all, he said, in respect of claims by owners (or anyone else in the charmed circle of those entitled to limit under Article 1) for losses originally suffered by the latter. But by way of exception, charterers could limit in recourse claims from owners, who having paid claims to third parties where limitation did apply, then sought indemnity from them. Here, however, that was beside the point: since there was no element of recourse in the present proceedings, it followed that MSC had to pay in full.

This sufficed to wrap up the case. If one may say so, Males LJ’s solution seems instinctively right. Presumably, it is worth adding, it equally applies to claims not from owners but from other charterers: so if there is (say) a series of time charters and subcharters and a claim – dangerous cargo, stowage damage, or whatever – to be passed down the line, each charterer in turn would be able to limit. Presumably also Males LJ’s reasoning applies to operators of vessels who find themselves in the firing line after a casualty and wish in turn to invoke the power to limit under Article 1(2).

Males LJ also said something about MSC’s other grounds of appeal, though these strictly did not arise. In particular, Andrew Baker’s holding that the claim from Conti had to be looked at as a whole he found unimpressive. It is suggested he was right to do so: there seems no reason to demand that a large and possibly disparate claim be pigeonholed as a whole into some category or another rather than looked at seriatim as regards its parts.

It seems to follow that had it been not been found that all the expenses had been incurred as part of the operation of repairing the vessel, and that some had been genuine recourse claims arising from Conti’s potential liabilities to cargo, limitation would have been allowed.

All in all, however, this is a decision that will make the lives of lawyers and P&I executives seeking to settle claims, not to mention academics, a great deal easier. Just what we want: a bit of good news as we all return from our holidays for the new term.

Fit for 55. Two more EU laws for shipping to think about.

Two more ‘Fit for 55’ measures that will affect maritime transport have now reached the legislative finishing line with approval by the Council on 25 July 2023. The new rules will be published in the Official Journal of the European Union and enter into force 20 days after publication.  

  1. FuelEU Maritime

FuelEU Maritime sets maximum limits on the yearly greenhouse gas intensity of the energy a ship uses, covering CO2, methane and nitrous oxide emissions over the full lifecycle of the fuels and applies to all commercial vessels of 5,000 gross tonnes with exemptions for naval vessels, fishing vessels, and ships using non-mechanical propulsion. It covers all energy used on board when the ship is at the port, all energy used on voyages between EU ports and 50% of the energy used on voyages departing from or arriving at an EU port. The reduction schedule from a 2020 baseline is -2 per cent from 2025; -6 per cent from 2030; -14.5 per cent from 2035; -31 per cent from 2040; -62 per cent from 2045; -80 per cent from 2050. Offsetting emissions credits are given to those ship owners who use renewable fuels of non-biological origin (RFNBO) from 2025 to 2034, and a 2 per cent renewable fuels usage target as of 2034 will be set if the Commission reports that in 2031 RFNBOs amount to less than 1 per cent in fuel mix. There are also similar provisions to those in the ETS regarding evasive container transhipments from ports less than 300 nautical miles from an EU port, with the Commission to provide the first list of such ports before 31 December 2025.

From January 2030, container ships and passenger ships at EU ports will also have to connect to the onshore power supply and use it for all energy needs while at berth at quayside in TEN-T core and comprehensive network ports or use alternative zero-emission technologies. From January 2035, this will apply to container ships and passenger ships at quayside in all EU ports where the quay is equipped. Whether this onshore power supply will be provided from green sources remains to be seen.

The responsibility for compliance lies with the “company”, defined in the same way as the ‘shipping company’ in the amend MRV Regulation and the amended ETS Directive. Shipping companies must submit to verifiers a standardised emissions monitoring plan for each of their vessels by 31 August 2024. Their records must contain the ‘well to wake’ emissions factors for each type of fuel used at berth and sea. At the end of April each year, shipping companies must submit their data, including that already reported for MRV regulation. There are harmonised penalties for non-compliance with the requirements on both the greenhouse gas intensity content and the connection to onshore electricity. The Regulation provides for a voluntary pooling mechanism under which ships will be allowed to pool their compliance balance with one or more other ships, thereby making it the overall pool that has to meet the greenhouse gas intensity limits on average.

FuelEU Maritime also recognises the polluter pays’ principle, providing in Article 23(8):
“The company shall remain responsible for the payment of the FuelEU penalties, without prejudice to the possibility for the company to conclude contractual agreements with the commercial operators of the ship that provide for the liability of the commercial operators to reimburse the company for the payment of the FuelEU penalties, when the responsibility for the purchase of the fuel or the operation of the ship is assumed by the commercial operator. For the purposes of this paragraph, operation of the ship shall mean determining the cargo carried, the route and the speed of the ship.”
There is a similar provision in Article 23(9) with regard to contracts with fuel suppliers. Unlike the costs of surrendered ETS allowances in the revised ETS Directive, there is no provision for any statutory right of pass-through from the company to the time charterer of penalties in Article 23(8) and (9).

  1. Regulation on the deployment of alternative fuels infrastructure (AFIR). This amends the Directive on the Deployment of Alternative Fuels Infrastructure 2014/94/EU (DAFI) to require Member States to take necessary measures to ensure that minimum shore-side electricity supply for seagoing container and passenger ships is provided in maritime ports by 1 January 2030. Additionally, Article 11 requires Member States to ensure that an ‘appropriate’ number of refuelling points for liquified methane ‘liquefied methane’ are put in place at TEN-T core maritime ports by 31 December 2024. On 19 October 2022, the Parliament proposed adding hydrogen and ammonia to the core network of refuelling points for LNG at maritime ports by 2025 but this does not appear in the final text of the Regulation. Instead Article 14 requires Member States to develop draft a national policy framework for developing alternative fuels for transport, containing various elements, in particular (k) “an overview of the state of play, perspectives and planned measures in respect of the deployment of alternative fuels infrastructure in maritime ports other than for liquefied methane and shore-side electricity supply for use by seagoing vessels, such as for hydrogen, ammonia, methanol and electricity.”

Electronic trade documents: a bit more detail

At last. A couple of days ago the King signed the Electronic Trade Documents Act 2023, with the result that from 20 September we modernise and join jurisdictions such as Singapore and New York, in giving at least some computerised trade documents equivalent status to paper versions. Yesterday we gave you the heads-up: today we go into some details.

The new Act is in many ways an object lesson in how to legislate for commercial law. It is brief and to the point: aside from incidental powers to pass regulations and other boring stuff, it consists of just four sections. This is good regulation showing (to mix metaphors) both a broad brush and a light touch.

1. The Act and bills of lading

The main import of the new Act concerns bills of lading. The problems of paper bills are well-known. They are increasingly easy to forge. The need to present them in order to get goods, and the carrier’s equal and opposite duty not to release goods to someone who cannot present them, create headaches for carriers, banks and others which in practice cost big money. Also troublesome is the fact that, just as by the laws of physics nothing can move more rapidly than light, by the limitations of business no physical bill of lading can travel faster than DHL. This means that by the time a bill of lading has passed through the hands of a number of cargo owners and banks, it not infrequently arrives at the discharge port considerably after the ship carrying the cargo it relates to.

The statutory solution produced by the Act is neat. Section 2, summarised, provides that a computerised document can stand in for a paper one provided a reliable system is used aimed at ensuring that it can be identified, protected from unauthorised alteration or copying, and is susceptible to control by a single person to the exclusion of others, such that that power of control can be passed to another person who obtains a similar power. (See ss.2(2), 2(3).) The foundations thus laid, s.3 then states baldly (i) that an electronic document satisfying these criteria has the same effect as a written one (s.3(2)); (ii) that such a document can be possessed, endorsed and delivered (s.3(1)); and (iii) that anything done in relation to it has the same effect as the equivalent action as regards a paper document (s.3(3)).

You might say, why is this important? After all, two functions of the bill of lading are that of a contract of carriage and a receipt, and there has never been any difficulty about the enforceability of computerised contracts, or about the efficacy of electronic receipts. The answer is that it does matter, for three reasons.

First, we now know that once the Act is in force ss.2 and 3 of the Carriage of Goods by Sea Act 1992 will be effective to transfer contractual rights and duties under e-bills (which they probably were not before, the power under s.1(5) to extend them to such instruments having languished unexercised by governments with other, doubtless weightier, matters on their plate).

Secondly, there may have been some lingering uncertainty about whether the shipowner’s duty to hand over cargo only to a bill of lading holder, and his protection from liability to a true owner if in good faith he did so, necessarily applied to holders of e-bills. In commerce, such dubiety can be fatal to the adoption of new ways of doing things. The Act now puts this issue beyond doubt. This means that many of the reservations previously entertained by carriers and P&I interests about using e-bills outside closed contractual schemes such as BOLERO and essDocs can now be put aside.

Thirdly, the security provided by e-bills to banks is now greatly strengthened. At common law, it should be remembered, a valid pledge over goods requires a transfer of possession to the pledgee; and while there has never been any doubt that delivery of a paper bill of lading to a financier will suffice for this purpose, it was never very clear whether the same applied to an e-bill. It is now confirmed that it does. As a result, banks can rest assured that as a matter of English law possession of an e-bill gives them a full possessory security, and not some less satisfactory alternative such as a mere equitable charge.

Fourth, there is an intensely practical point. While e-bills will not eliminate the problem of slow transit of bills of lading (bureaucrats working for traders and banks in certain countries can be just as slow handling documents on a screen as they are when shuffling paper), they certainly reduce it. The possibility of transmission over cyberspace rather than by van or cargo plane may greatly reduce the incidence of documents arising after the cargo they represent. (Memo: perhaps this is the time to mull selling your shares in DHL and the banks that currently make large sums issuing bank guarantees allowing delivery to non-bill-of-lading-holders.)

No doubt, as a result of all this, we will see in the near future a flurry of announcements from P&I Clubs – who as the bodies that have to pick up the tab when things go wrong hold the whip hand here, in practice if not in law – that at least in principle they are prepared for their clients to operate with e-bills. We will await these with interest.

2. The Act and other documents relating to good

The Act does not only apply to bills of lading: it alaso applies to ship’s delivery orders, warehouse receipts, mate’s receipts, marine insurance policies, and cargo insurance certificates. Indeed this list is not exhaustive: on principle the statute affects any commercial document used in connection with trade or finance, provided its possession is “required as a matter of law or commercial custom, usage or practice for a person to claim performance of an obligation.”

On first sight, one might wonder why the list of documents was as wide as this. The difficulties with e-bills largely stemmed fromquestions about whether the bill of lading’s function as a document of title extended beyond paper instruments. But none of therse extra documents was ever a document of title anyway: so why bother?

The answer here is varied. With mate’s receipts it is difficult to see that the Act changes anything much. Save very exceptionally these are not only not documents of title, but entirely untransferable instruments relevant largely as evidence of the state and quantity of goods loaded: whether they are embodied on paper or in computer code seems beside the point.

With ship’s delivery orders and warehouse receipts there are two issues of possible significance. First, ship’s delivery orders are covered under the Carriage of Goods by Sea Act 1992, and are often as a matter of practice if not strict law presented to obtain goods: it is thus reassuring to have confirmation that they work as well in electronic form as they do on paper. Secondly, both ship’s delivery orders and warehouse receipts in paper form are regarded as documents of title within ss.24, 25 and 47 of the Sale of Goods Act 1979 such that their delivery can in certain cases of goods in transit or storage defeat the rules of nemo dat and a seller’s lien or right of stoppage. Again, it is reassuring to know that from September on electronic versions will equall;y fir this particular bill.

The extension of the operation of the Act to insurance policies and insurance certificates also looks odd. But it may be worth noting for two purposes. First, s.22 of the Marine Insurance Act 1906 still theoretically requires a contract of marine insurance to be embodied in a “policy;” a term that some, especially international traders not over-familiar with the detailed workings of English law, might think required a paper policy. True, this section is almost entirely a dead letter in practice: but it remains helpful to have an assurance that an e-policy will now indubitably fit the bill. Secondly, documentary sales, especially on a cif basis, very frequently require the provision by the seller of an insurance policy or certificate; althgough this matter can of course in theory be dealt with by specific agreement, there is something to be said for a default rule that a seller under such a contract will satisfy his obligations by providing an e-policy or e-certificate.

3. Other documents

Although the main thrust of the Act concerns carriage and related documents, note that it also applies to bills of exchange and promissory notes. This is a more specialised area, which we do not go into detail about here. Suffice it to say that the burgeoning finance trade, in particular the forfaiting industry, finds it more convenient to deal with electronic than paper negotiable instruments, and that for this reason it very successfully promoted the idea of creating a regime receptive to e-bills of exchange and e-promissory-notes.

4. The future.

Excellent marks to the Law Commission: this is a workmanlike and well-drafted Act, which will solve most of the difficulties over e-documents. Most: but not all. One big shadow hangs over the whole thing, however: conflict of laws, something crucial in transnational trade. Two issues arise in this connection.

First, does the Act apply to claims under bills of lading not governed by English (or Scots or Northern Irish) law? We do not know; but the likely result is that it does not. If parties choose to incorporate a Ruritanian choice-of-law clause, and Ruritanian law does not recognise the validity of bills in other than paper form, it would be to say the least presumptuous for an English court to hold that in English litigation the Act applies willy-nilly, and the betting must be that it would not do so. Similarly if an e-bill is governed by the law of, say, Singapore, which does recognise e-bills, then it would still seem to make sense that claims should be governed not by the 2023 Act, but rather by the Singapore Bills of Lading Act 1992 as amended to incorporate the UNCITRAL Model Law on Electronic Transferable Records in so far as this yields a different result.

Second, while English law will clearly govern contractual claims arising out of e-bills with an English choice-of-law clause (i.e. the majority of claims in practice), what of non-contractual matters such as title conflicts? Imagine an e-bill governed by English law is indorsed to a bank in Utopia which has issued (or confirmed) a letter of credit on behalf of a now-bankrupt buyer B, and the law of Utopia does not recognise that the bank has a valid security. Unless we say that because an e-bill of lading is a disembodied pattern of electrons rather than anything touchable its situs is deemed to be that of the jurisdiction by whose law it is governed, it is hard to avoid the conclusion that the law of Utopia as the lex situs applies to questions of proprietary interests in it. If so, then were litigation to arise in England between the bank and the creditors of B, a court or arbitrator might well be driven to hold that the bank’s security was ineffective despite s.3(3) of the 2023 Act.

On this we will have to wait. But there is at least some relief round the corner: the Law Commission is now hard at work on precisely these questions, and we are promised a consultation paper later this year. Meanwhile, you have two months to bone up on the existing proposals and be ready for at least something of an Big E-bang in September.

PAPERLESS TRADE: THE ELECTRONIC TRADE DOCUMENTS ACT IS OFFICIAL NOW 

Charles Darwin had a point. It was not, he said, the strongest of the species that survived, nor the most intelligent, but that most adaptable to change.  So too with the law and digital transformation. The UK government recognises this well.

As the G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. The Electronic Trade Documents Bill was first introduced in the House of Lords on 12 October 2022 (See the previous blog post here:  PAPERLESS TRADE: ANOTHER STEP FURTHER – The Institute of International Shipping & Trade Law (IISTL) Blog). Following intense efforts and different stages, the Bill has now the status of law with Royal Assent swiftly received on 20 July 2023. Hence, the UK is the first G7 country to achieve an act to ensure transformation of trade and cement the legal recognition of electronic trade documents, including most importantly bills of lading, mate’s receipts, ship’s delivery orders, warehouse receipts, marine insurance policies, and cargo insurance certificates same as their paper equivalents.

Digitisation is an inevitable part of today’s global economy, with big data and cloud-based computing the driving force of industry and its supply chains and the smooth running of trade dependent not only on commercial operations but also to a great extent on the instantaneous turnaround and exchange of the relevant documents. Yet a huge number of the underlying processes and operations still rely “on practices developed by merchants hundreds of years ago.” This matters for us: under the latest statistics from the Department of Trade, international trade is worth around £1.266 trillion annually to the UK. Now as we have a law to these ends that is awaiting enforceability in September 2023, the Act will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays adding over £1bn to the British economy over the next decade as estimated. This will also contribute to sustainability, eco-efficiency, and environmental values by mitigating harmful carbon emissions, quite apart from boost the UK’s reputation as a global centre for international commerce and trade.

The Act is commendably brief, consisting of only seven sections. It starts with definitions of “paper trade document” and “qualifying electronic document” before presenting a non-exhaustive list of trade documents affected by it (excluding some more exotic instruments subject to the Uncertificated Securities Regulations 2001, and curiosities such as bearer bonds). Among others, the Act brings clarity to the concept of possession, transfer and indorsement of electronic documents, and deal withs the change of a paper form to an electronic one or vice versa. The provisions assure their functionality and reliability for the right to delivery of goods or payments of sums of money similar to paper counterparts.

It is worth noting that the Act does not contain any provisions on the procedural aspects of digitisation of documents, the use, and exploitation of digitised documentation, or the mechanics of changing its form. In addition, the effectiveness of the gateway criteria might be achieved only upon the adoption of the specific protocols regarding the digital systems, their control mechanisms, and accreditation standards. Indeed, a detailed commentary will become essential for the practical application of the Act. This matters: unless such concerns are satisfactorily sorted out, an electronic trade document that is effective in one jurisdiction might not be treated in the same way in another.  Moreover, while trade documents are being transferred across borders, cross-border disputes are at least to some extent inevitable. This means that we will need to give attention to the private international law rules specific to such documents: even if they contain an English choice-of-law clause, this will not necessarily ensure the application of English law to all their aspects. The Law Commission, to its credit, has recognised this. It has already launched a follow-up project on the Conflict of laws and emerging technology to ensure the rules of applicable law and jurisdiction in an increasingly digitised world (the latter is still at the pre-consultation stage).

Needless to say, the Act is a very important development not only for the UK but also globally; most likely, its adoption will become a significant example and the best practice for other jurisdictions. As put by Nigel Huddleston, UK’s Minister for International Trade, “It’s exciting to see the power of technology being harnessed to benefit all industries, reduce paper waste and modernise our trading laws.” It is for us to welcome it!

See: Electronic Trade Documents Act 2023 – Parliamentary Bills – UK Parliament

CMR Art 23.4. Broad interpretation of ‘other charges incurred in respect of the carriage of the goods’ covers excise duty levied on stolen goods.

Two days ago in JTI POLSKA Sp. Z o.o. and others (Respondents) v Jakubowski and others (Appellants) [2023] UKSC 19  the Supreme Court gave its judgment in a ‘leap-frog’ appeal from the decision of Judge Pelling KC [2021] EWHC 1465 (Comm) that the road carrier under CMR was liable for excise duty levied by HMRC on the owner of 289 cases of cigarettes which were stolen at a service station on the M25 during the course of carriage by road from Poland to England.

Article 23.4 of the CMR provides that in the case of the loss of goods the cargo claimant may claim “carriage charges, Customs duties and other charges incurred in respect of the carriage of the goods”, in addition to the value of the goods. Courts in CMR jurisdictions have interpreted the phrase “other charges incurred in respect of the carriage of the goods” in article 23.4 in two main but different ways. The “broad interpretation” is that it encompasses charges incurred because of the way that the goods were actually carried and lost, so that the cargo claimant can recover excise duty levied on goods stolen in transit. The “narrow interpretation” is that it is limited to those charges which would have been incurred if the carriage had been performed without incident and so does not include excise duty levied as a result of the loss of the goods in transit through theft. In James Buchanan & Co. Ltd v Babco Forwarding & Shipping (UK) Ltd. [1978] AC 141 (Buchanan), which also involved excise duty levied on goods stolen in transit, the House of Lords decided by a 3:2 majority that the broad interpretation should be adopted. Their Lordships’ interpretation was subsequently criticised in obiter dicta of the Court of Appeal in Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113; [2003] QB 1270.

The Appellants submitted that the narrow interpretation is to be preferred and that the Supreme Court should exercise its power to depart from Buchanan pursuant to the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 (“the 1966 Practice Statement”). In the light of the authorities on the 1966 Practice Statement, if the Supreme Court was to exercise its power to depart from Buchanan, the appellants to show that the decision was untenable or manifestly wrong.

The Supreme court found that Buchanan was tenable, which was supported by the fact that it reflected the conclusion of the judges at all levels in the case itself, other than the minority in the House of Lords and decisions reached by the Supreme Courts of Denmark, the Czech Republic, Lithuania and (arguably) Belgium as well as the Italian Court of Appeal.

As to the ordinary meaning of article 23.4, there was little doubt that the relevant wording is widely drawn. “In respect of” is commonly understood as equating to “in connection with”. It was very difficult to say that a loss which occurs during the course of road carriage and as a result of the way in which that carriage is performed is not connected with that carriage. Under art 23.4 the loss had to be a “charge” in order to be recoverable which excluded the most obvious form of consequential loss claim, such as a claim for loss of bargain or expectation loss or other lost profits, so giving content to the concluding words that “no further damage shall be payable”.

Even if the Supreme Court had concluded that Buchanan was wrong more would be needed to justify departing from that decision. There was no uncertainty created by contrary dicta of the Court of Appeal in Sandeman. It was the inappropriate statement by the Court of Appeal which should not have been made, which caused any uncertainty rather than the decision in Buchanan. Academic views on the decision were not unanimous in disapproval and the German and Swedish Supreme Court decisions applying the ‘narrow’ interpretation had to be balanced against the contrary decisions reached by, for example, the Supreme Courts of Denmark, The Czech Republic and Lithuania. There was no international consensus on the interpretation of art 23.4 of CMR. Nor had it been shown that Buchanan decision worked unsatisfactorily in the market place, as parties do not attempt to contract around the decision. Liability for excise duty is a recognised risk and insurers of both cargo interests and carriers underwrite on the basis of the full value of the cargo, including excise duty. Nor was it suggested that Buchanan produces manifestly unjust results. Despite the desirability of a uniform view as to the proper interpretation of article 23.4, that would not be achieved by reversing Buchanan. Uniformity would need an  amendment through a Protocol, as had been done for CIM, but that was a matter for the parties to the CMR.

So, as you were, with regard to recovery of excise charges on stolen goods under CMR.

Hague-Visby time limit applies to claims for misdelivery after discharge.

Yesterday in The “GIANT ACE”, FIMBank PLC v KCH Shipping Co Ltd, [2023] EWCA Civ 569 (24 May 2023), the Court of Appeal upheld the judgment of Sir William Blair J last autumn that the one year time limit under the Hague-Visby Rules applies to claims for misdelivery where the cargo is delivered outside the tackle to tackle ambit of the Hague Visby Rules, after discharge has been completed.

Three issues arose for decision, with Males LJ giving the principal judgment of the Court of Appeal, with whom Popplewell LJ and Nugee LJ agreed.

(1) Does Article III, rule 6 of the Hague Visby Rules apply to a claim for misdelivery occurring after discharge of the cargo has been completed?

The Court of Appeal considered that the Rules do not apply to misdelivery of cargo stored on land after discharge, whether or not such misdelivery is a breach of the contract evidenced by the bill of lading, at least where the misdelivery is not related to the discharge operation. However, the natural meaning of Article III, rule 6 of the Hague Rules is that if suit is not brought in time, the carrier will be discharged from all liability of any kind arising during the Hague Rules period of responsibility.

Article  III (6) of the Hague-Visby Rules  in paragraph 3 provides “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. (emphasis added).” This contains a change from the phrase in the Hague Rules “all liability in respect of loss or damage” to “all liability whatsoever in respect of the goods” which weakened or even removed the nexus with loss or damage to the cargo which was previously required. If, the natural meaning of Article III, rule 6 of the Hague Rules was that the carrier will be discharged from all liability of any kind arising during the Hague Rules period of responsibility, it was a reasonable inference that the new rule was intended to apply even in cases outside the sphere of application of the Rules.

Reference to the travaux préparatoires in accordance with Article 32 of the Vienna Convention confirmed that Article III, rule 6 of the Hague Visby Rules was intended to apply to misdelivery claims. It was put before a plenary session of the CMI on June 14, 1963, with the explanation (p. 500) that: ‘The object of the aforesaid amendment is to give the text a bearing as wide as possible, so as to embody within the scope of application of the one year period, even the claims grounded on the delivery of the goods to a person not entitled to them, i.e. even in the case of what we call a wrong delivery.’ This constituted an interpretative ‘bulls-eye’. Although misdelivery can occur during the voyage or simultaneously with discharge, misdelivery after discharge is the paradigm case which would have been understood by the drafters of the Visby amendments to the Hague Rules. Had they intended to limit the new Article III, rule 6 to cases of misdelivery occurring during the carriage by sea (including the discharge operation itself), they could have been expected to say so. However, there was no indication in the travaux that they intended to limit the new rule in this way. Although two decisions from Hong Kong (Cheong Yuk Fai v China International Freight Forwarders (H.K.) Co Ltd [2005] 4 HKLRD 749 and Perfect Best Asset Management Inc v ASL Express Ltd [2021] HKCFI 2310) have held that Article III, rule 6 of the Hague Visby Rules does not apply to a claim for misdelivery occurring after discharge, two cases from one jurisdiction were not capable of amounting to an international consensus on the interpretation of the provision. Further, the two judgments in those cases did not consider either the significance of the language used in the Visby amendment to Article III, rule 6 or the impact of the Visby travaux préparatoires.

(2) If not, was there an implied term in the bills of lading to the effect that the Hague Visby Rules including Article III, rule 6 would apply to govern the parties’ relationship after discharge of the cargo (referred to in argument as “the Carver implied term”)? This derives from the following passage in the fifth edition of Carver on bills of lading at para 9-135 -“It is submitted therefore that as a matter of the English law of contract it may well be appropriate to state the position as being that the Rules may apply as implied terms after receipt of the goods but before loading, and after discharge but during the period before delivery or up to the time of the operation of any separate warehousing arrangements, except insofar as this result has been excluded or modified by the parties.”

Given the decision on the first issue, it was not necessary to reach a final conclusion on this issue. Males LJ had considerable doubt whether a term to the effect suggested could be implied. If such a term rested on an implication in fact, there were no factual findings in the award on which such an implication could be founded. To the extent that it was an implication in law, it seemed difficult to imply a term that the Rules should apply if, on their own terms, they do not.

(3) If the answer to either of these questions is “yes”, does clause 2(c) of the Congenbill form have the effect of disapplying the time bar in Article III, rule 6?

 Clause 2 (c) provides:

“The Carrier shall in no case be responsible for loss of or damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel of [sc. or] while the cargo is in the charge of another Carrier, nor in respect of deck cargo or live animals.”

The issue was rather artificial as if the clause did exclude liability, something which was not in issue, the issue of time bar would not arise. cl.2 On the other hand, if the carrier remains liable for misdelivery after discharge despite clause 2(c),  there was no reason why the one-year time limit for such a claim should not apply.

The Appeal was therefore dismissed.

Life after novation. Indorsee’s consent to discharge of cargo without production of bill of lading.

The Sienna, Unicredit Bank AG v Euronav NV [2023] EWCA Civ 471 involved a claim by a financing bank against shipowners for delivery of cargo without production of a bill of lading. The cargo had been carried under a charter with BP who were the initial holder of the bill of lading as shipper. The charter was novated, and subsequently BP indorsed the bill of lading to the bank who received it after the cargo had been discharged against an indemnity in the charter, without production of the bill of lading.

Moulder J found that the bank could not sue the owners under the bill of lading because the bill of lading lost its potential contractual status when there was a novation of the charter with BP. She also found that if there had been a contract with the indorsee as the lawful holder of the bill of lading, there would have been no breach. The indorsement and transfer of the bill of lading to the Bank was being held up largely due to the effect of the first Covid lockdown in the UK in March 2020. She found that had the shipowner refused to deliver the cargo without production of the bill of lading it would have sought instructions from BP who would have referred to the Bank as the intended indorsee and the Bank would have agreed that the cargo be discharged without production of the bill of lading.

On appeal the Court of Appeal overturned the first basis of the decision, but upheld the second.

On the first ground, it was clear that where a shipper is also the charterer, the bill of lading is generally not a contract of carriage but a mere receipt, but when indorsed to a third party, it attains contractual status upon indorsement on the basis that “a new contract appears to spring up between the ship and the consignee on the terms of the bill of lading” (Tate & Lyle Ltd. v Hain Steamship Co. (1936) 55 Lloyd’s Rep 159, 174). However, Moulder J had found that this was not the case as regards the indorsee when the bill of lading had remained in the hands of the charterer after the charterer ceased to be a party to the charterparty. Popplewell LJ giving the judgment of the Court of Appeal, characterised the ‘mere receipt’ rule as follows. In issuing a bill of lading, the carrier usually contracts with the holder on those terms save only for so long as the holder is a charterer, and save to the extent thereafter (if at all) that the contractual relationship with the carrier for performance of the carriage remains governed by the charterparty (as it was for pre Novation Agreement conduct in the present case). The bill of lading will not otherwise be a mere receipt but will contain or evidence a contract of carriage. This reflects the presumed intention of the parties. Popplewell LJ found that the bill of lading was not a mere receipt in BP’s hands at the time of discharge as it had become a document containing or evidencing a contract with BP from the date of the Novation Agreement, and remained so at the date of discharge.

Furthermore, dealing with an argument not raised before Moulder J, he found that the indorsee is put in the same position as if he had been a party to a contract on the terms of the bill from the date of its issue: Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196, 218. The language of s. 2(1) makes clear that it operates retrospectively. The position is no different for an indorsee from a charterer from that which applies to an indorsee from a non-chartering shipper. The position would be the same where indorsement takes place after discharge than it is where indorsement takes place before provided the indorsee takes pursuant to pre-existing contractual arrangements,  as required by s2 (2) of COGSA 1992, which is what the Bank did in this case.

Turning to the second ground of Moulder J’s decision, although the indorsee would not be affected by any agreement between the owners and the charterer that the cargo could be delivered against a letter of indemnity in the absence of a bill of lading, the indorsee itself could consent to this. The bill of lading in this case was on its way to the bank and was held up due to administrative reasons largely connected with the initial COVID lockdown in the UK, rather than commercial ones. Had Owners initially complied with the obligation not to discharge without production of the Bill, they would have sought and obtained express consent to do so from both the holder and the bank as intended indorsee. Delivery without production of the bill of lading would no longer have been a breach of the contract and so the initial breach would have caused no loss.

Accordingly, the Court of Appeal upheld Moulder J’s findings on causation and owner’s appeal was dismissed.