Saturday, 4 July 2015

Bills of Lading – how can you be sure you are settling a cargo claim with the right party?

July 4, 2015. 

Carlos Soto Sau and another v. AP Møller-Maersk AS (SFL Hawk) [2015] EWHC 458 (Comm) 

The Commercial Court has recently ruled on preliminary issues in a cargo claim, including an issue regarding who the owner of the goods was in circumstances where there was a series of sale contracts and only one of the sale contracts contained a right of rejection. In this case, the Court held that the ultimate buyer at the bottom of the chain of contracts had obtained good title to the cargo as a good faith purchaser for value. The case highlights some of the difficulties that can arise where a series of related contracts is not on back- to-back terms.


The background facts

In October 2012, PT Awindo International (“A”) agreed to sell a cargo of frozen swordfish on CFR terms to Fishco BVBA (“B”) who, in turn, entered into an on-sale contract with Carlos Soto Sau (“C”). The terms of the contract between A and B provided that in the event of rejection by the port health authority, A was to refund B 100% of the invoice amount (the “rejection clause”), and B had the right to cancel the letter of credit (the “L/C”) it had opened, provided it presented the rejection certificate to the bank within 45 days of the date of shipment. The on-sale contract between B and C contained no such rejection clause and payment was also by way of a L/C.

On or about 14 November 2012, a standard form bill of lading was issued, naming A as the shipper and stating that the consignee was “TO ORDER”. C was the stated notify party. In December 2012, the cargo was rejected by the port health authority as unfit for human consumption. B cancelled its L/C pursuant to the rejection clause. However, the receiver, C, took delivery and paid B the full purchase price.

A then brought a claim against Maersk (the Carrier), resulting in a settlement agreement between Maersk and A, whereby A warranted that it was the lawful holder of the bill of lading and that no other party had title to sue. After paying the full contract price for the cargo, C then brought a claim against Maersk under the bill of lading for the sound market value of the cargo less the salvage value, plus handling costs at the port. C alleged that the warranties in the settlement agreement A was in breach of and claimed that it was entitled to sue and recover its losses under the bill of lading.

The preliminary issues to be decided by the Court were as follows: (i) was C at all relevant times the owner of the cargo; and (ii) had C suffered any loss as a result of the alleged damage?

The Commercial Court decision

In relation to the first issue, the Court held that C was to be regarded as the owner of the goods from the date of its receipt of the bill of lading. The Court pointed out that, under a CFR contract, the question of when property passes is one of “actual intention”. However, the Court also noted that, whilst transfer of a bill of lading is prima facie evidence of intention to pass property, it is not determinative. The Court found that, in this case, it had not been intended that title to the cargo should pass from A to B until the contract price was paid and received. This was based on B’s rights under the rejection clause.

However, the Court also noted the effect of s.25(1) of the Sale of Goods Act 1979, which covers the situation where a buyer has been allowed by the seller to take possession of the goods or documents of title before property has passed, and then resells. Provided that there is actual delivery of the goods or documents of title, the new purchaser who takes in good faith and without notice of any third party’s right to the goods will obtain a good title. 

The Court held that C was entitled to rely on s25(1), with the effect that C was to be regarded as the owner of the cargo. In accordance with s25(1), the bill of lading was received by C in good faith and without notice of any lien or other right of A in respect of the cargo. The fact that C had received a packing list which referenced the rejection clause in A’s contract with B was insufficient to put C on notice of the possibility that A retained ownership of the goods.

The second issue was one of causation. The Court held that Maersk’s breach was an effective cause of C’s loss. B’s failure to reimburse C once B’s purchase from A had been cancelled did not amount to an intervening act sufficient to break the chain of causation and let Maersk off the hook.

Comment

Carriers  and their P&I clubs who settle cargo claims should always ask to see the original bills of lading and check that this names the claimant or has been endorsed to the claimant. If the claimant cannot provide the original bills, save the one that may have been tendered for delivery, then this should raise concerns. 

That said, even if a claimant can produce such a bill, there is always the possibility that other parties with an interest in the goods may seek to sue the carrier. So any settlement should contain an undertaking from the claimant to indemnify the carrier if this happens. 

Where the sums involved are large and the indemnity may be worthless,  a carrier should ask to see the underlying sale contracts and related correspondence in order to satisfy himself that he is settling the claim with the only party that can sue. 

Source: http://incelaw.com

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