September 05 2007
The Hong Kong Court of Appeal has recently handed down an important decision concerning straight bills of lading and misdelivery claims in Carewins Development (China) Limited v Bright Fortune Shipping Limited  3 HKLRD 396, reversing the High Court's first instance decision (for further details please see "High Court Dismisses Misdelivery Claim") and holding the carrier liable for misdelivery of cargo to the named consignee under straight bills of lading.
A straight bill of lading names the consignee which is entitled to take delivery of the cargo. A straight bill is non-negotiable, which means that the consignee cannot endorse the bill and transfer it to another person to take delivery of the cargo.
In Carewins the carrier argued that straight bills of lading are not documents of title; therefore, the carrier can deliver the cargo to the consignee without production of the original bill of lading because the carrier already knows the identity of the consignee without the original bill being produced. However, the Court of Appeal agreed with the first instance judge and held that a straight bill of lading is a document of title. Furthermore, it held that the carrier can deliver the cargo only against production of the original bill.
The court emphasized that the obligation to produce a straight bill to the carrier may serve a significant function - for example, the shipper may have refused to transfer the original bill to the consignee if the consignee has not paid the shipper for the cargo. The court stated that:
"[A]s a document of title, a straight bill has to be produced before the named consignee can obtain delivery of the goods. This is because, just as with an order bill, a straight bill is a key to the goods or, as it is sometimes described, the key to the warehouse. To obtain the goods, one has first to produce the key."
The decision resolves previous uncertainty concerning the status of straight bills. In The Brij  1 Lloyds Rep 431 it was held that the carrier did not need to demand sight of the original straight bill before delivering the cargo to the consignee. However, in Carewins the first instance judge stated that an original bill must be produced. The Court of Appeal has resolved these conflicting Hong Kong decisions in favour of requiring production of the straight bill, which is also consistent with the House of Lords decision in The Rafaela S  AC 423. Consequently, if a carrier delivers cargo to the consignee under a straight bill of lading, without requiring production of the original bill, it may commit the tort of conversion and be liable to the shipper for damages.
The next issue was whether the carrier could exclude liability for misdelivery of cargo under the terms of the contract of carriage. In Carewins the contract of carriage included an exclusion clause which allowed the carrier to exclude liability "for loss or misdelivery of or damage to the goods howsoever caused, whether or not through the negligence of the carrier". The first instance judge held that the exclusion clause applied to misdelivery of cargo and said that if this exemption clause were held to be inapplicable, "it [would not be] easy to conceive of any clause which could exclude liability for misdelivery."
The Court of Appeal disagreed. It held that the wording of the exclusion clause limited its application to claims arising from negligence or non-negligence. However, the court held that deliberate or intentional misdelivery of cargo to a party without production of an original bill of lading constitutes conversion. The court stated that:
"What has happened here is beyond a matter of negligence or non-negligence: it is an intentional disregard of a term of the actual contract of carriage. It is possible for a clause to exclude liability for such an intentional disregard, but the clause must be crystal clear. Such clarity is essential, particularly where what is sought to be excluded is precisely what the defendants had contracted to do - [namely, to] make proper delivery of goods."
In light of the Carewins decision, carriers should carefully review the terms and conditions of their contracts of carriage in order to check whether they cover misdelivery claims. The court has clarified that it is not enough to exclude liability for negligence if the carrier misdelivers cargo without the original bill of lading being produced.
The court also considered whether the consignee's claim was subject to the Amended Hague Rules. If so, Article III, Rule 8 would prevent the carrier from excluding liability. The court stated that the cargo was misdelivered after unloading from the vessel, but at some point before customs clearance in the port of Los Angeles. Article 1(e) of the rules provides that the carrier's period of responsibility runs "from the time when the goods are loaded on to the time they are discharged from the ship". The first instance judge held this to mean that the carrier's period of responsibility does not extend beyond final unloading from the vessel to include every act up to and including delivery of the goods. He said that to conclude otherwise "would be tantamount to regarding the carrier both as carrier and warehouseman".
On appeal, the carrier argued that its obligations under the rules ended when the cargo was unloaded from the vessel onto the wharf. The court took a different approach, focusing on the parties' contract of carriage. The court stated that parties to such a contract may decide the extent to which the carrier's obligations under the rules extend beyond loading and unloading the cargo.
The court held that, under the terms of the contract of carriage, the parties had agreed to make the period from loading to discharge (as specified in the rules) equivalent to the period from the carrier's receipt of the cargo at the port of Hong Kong to the delivery of the cargo to the consignee in the port of Los Angeles. Therefore, the carrier's misdelivery of the cargo occurred during the period in which the rules applied. Pursuant to Article III, Rule 8, the carrier was not entitled to exclude liability for misdelivery.
The Carewins decision contrasts with the English Court of Appeal decision in Mediterranean Shipping Company v Trafigura Beheer BV  EWCA Civ 794, which was handed down two weeks later. The English Court of Appeal also considered whether a claim for misdelivery of cargo was covered by the rules. However, having reviewed the terms and conditions in the bill of lading, the court held that the carrier's obligations under the rules did not continue after the cargo was discharged from the vessel.
In Carewins the Hong Kong Court of Appeal emphasized the importance of the carrier's obligation to deliver cargo against production of the original bill of lading. This applies regardless of whether the bill of lading is a negotiable bill or a straight bill. Furthermore, the court interpreted the contract of carriage to apply the rules after the cargo had been unloaded from the ship. The court found that the carrier's terms and conditions of carriage were insufficient to protect it from liability for misdelivery. Therefore, under Hong Kong law, if a carrier seeks to limit or exclude liability after discharge of cargo from the vessel (but before delivery), it must draft its terms and conditions of carriage carefully to define the scope of its obligations and the application of the rules.
For further information on this topic please contact Nick Luxton at Holman Fenwick & Willan by telephone (+852 2522 3006) or by fax (+852 2877 8110) or by email (email@example.com).
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