When can the lawful holder of a bill of lading claim damages for losses sustained by a third party? That was the question before the court in Sevylor Shipping and Trading Corp v Altfadul and SIAT[2018] EWHC 629 (Comm), 23 March 2018. Altfadul were the lawful holder of the bill of lading and SIAT were the assignees of their claim under the bills of lading against the carrier. That claim arose in respect of damage to a cargo of bananas, totalling just over $4.5m. In respect of this claim, Altfadul had received partial compensation from their seller, who were the voyage charterers, of just over $.2.5m. The arbitrators found that Altfadul were able to claim the full amount of the damages sustained by the cargo, and that the $2.5 m for which they had been compensated by their sellers could be recovered under s2(4) of COGSA 1992. This provides:
Where, in the case of any documents 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.
The arbitrators found: (i) s2(4) was not limited to situations in which the third party whose loss was being claimed by the lawful holder had been a previous lawful holder and had lost its rights through s2(5): (ii) s2(4) did allow Altfadul to recover for their seller’s loss. Section 2(4) required one to hypothesise that the Charterers had vested in themselves the rights of suit under the bill of lading and if so, whether they have been entitled to recover the loss suffered, to which the answer was ‘yes’.
The owners appealed from the tribunal’s decision. Andrew Baker J agreed with the first finding of the arbitrators but not with the second finding. The seller had been an intermediate holder of the bill of lading but as it had a voyage charter with the shipowner, under the rule in The Dunelmia [1970] 1 QB 289 the bill of lading in its hands was a mere receipt. The statutory vesting of rights of suit in him under s2(1) did not entitle a charterer to whom the mere receipt rule applied to sue the carrier under the bill of lading for losses suffered by him. His entitlement to recover those losses from the carrier was governed by the charter alone. Section 2(4) required one to hypothesise whether the person who sustained loss would have been able to exercise rights of suit under the Act if they had been vested in them. The answer with a charterer to whom the ‘mere receipt’ rule applied, was clearly ‘no’. Accordingly, s. 2(4) did not entitle the lawful holder to exercise its rights for its seller as the person who had sustained loss or damage, through the partial compensation it had paid to Altfadul in respect of the cargo damage.
However, Andrew Baker J went on to find that the tribunal’s decision to award the full amount of loss to Altfadul was correct under common law principles as regards damages entitlements under contracts for the carriage of goods by sea. In R&W Paul Ltd v National Steamship Co Ltd (1937) 59 Ll L Rep 28 Goddard J had found that a recovery from an intermediate seller was res inter alios acta as regards the bill of lading holder’s contractual entitlement to damages. The bill of lading holder would have to account to its seller in respect of the damages received in relation to that recovery, but that did not affect its contractual entitlement to recover damages in full from the shipowner. The later decision in The Sanix Ace [1987] 1 Lloyd’s Rep 465 had not qualified that principle and restricted it to situations where the claimant could establish that it had owned, or had the immediate right to possession of, the cargo at the time at which it had been damaged. Andrew Baker J summarised the principles of recovery, thus.
- Assuming title to sue in contract, the carrier is liable to full damages if sued by the receiver who, by reason of the carrier’s breach, receives damaged rather than sound goods (R&W Paul) or if sued by a claimant who did not receive the damaged goods but who owned the goods when they were damaged by the carrier’s breach (The Sanix Ace), in each case irrespective of how financial loss reflecting or resulting from the cargo damage is or comes to be distributed across the sale of goods chain (ibid). The former sues as the owner of the damaged goods since but for the breach he would have been the owner of undamaged goods; the latter sues as the owner whose sound goods were damaged.