Article

Factual Summary: Applicant obtained three commercial letters of credit from the Singapore branch of an Indian Bank for four shipments from East Malaysian ports to Kandla, India. The LCs each stated that "negotiations under this credit are unrestricted."

Carrier issued four Bills of Lading covering the four shipments carried on board the vessel, consigned to the order of Issuer, who, together with Applicant, was listed as the notify party. Seller/Shipper/ Beneficiary presented the original Bills of Lading with other required documents to Negotiating Bank at its Kowloon Branch, Bintulu Branch, and Miri Branch. Negotiating Bank negotiated the drafts, but did not endorse the original Bills of Lading. Negotiating Bank presented the documents to Issuer, who duly honored and took them up.

Applicant had arranged with Carrier to issue a "switch bill of lading" for the four shipments, listing itself as the Shipper, and naming Applicant's subbuyers as the consignees. Carrier did so without first retrieving the original Bills of Lading on Applicant's written undertaking to return the original bill of ladings. Applicant endorsed the switch bills which the end-receivers presented to Carrier and obtained delivery of the goods.

When Applicant failed to reimburse Issuer, Issuer sued Carrier on the original Bills of Lading which it held, alleging that the Carrier had delivered the goods without production of the original bills, which had been in Issuer's possession at the time that the goods were discharged in India.

The trial court dismissed the action, ruling that Issuer lacked standing to sue. On appeal, remanded for a hearing on the merits.

Legal Analysis:

1. Bill of Lading, endorsement; Bill of Lading, title; Bill of lading, negotiation: The intermediate appellate court noted that under the applicable statute, Section 5(2) of the Bills of Lading Act (Cap 384, 1994 Rev Ed) [UK], only lawful holders of a bill of lading have a right to sue a carrier. The appellate court stated that since a shipper may change the name of a consignee by endorsement of a bill of lading, both endorsement and delivery of the bill are required for a shipper to confer its right to sue the carrier to a new, lawful holder of a bill of lading. The appellate court stated that absent endorsement and delivery, the next possessor of a bill of lading (here, the negotiating bank) is neither a consignee nor an endorsee, and is not "lawful holder" of the bill under Section 5(2) of the Bills of Lading Act. Indeed, under such circumstances the document is no longer a bill of lading as defined in Section 1(2) of the Bill of Lading Act. For both of these reasons, mere possession of the bills did not convey title to sue the carrier. A negotiating bank cannot transfer rights or title which it does not have. Where a negotiating bank is not a lawful holder, it cannot make the issuer any better off. Therefore, Issuer lacked title to sue Carrier on the Bills of Lading's contracts.

Comments by James E. BYRNE:

1. The decision is deeply troubling on two grounds. It concludes that the remitter/shipper of a bill of lading consigned to the order of a third person can effectively change the name of the consignee to whose order it is issued so that the consignee cannot be a lawful holder when it gives value and the Bills of lading are delivered to it through a correspondent bank.

2. This result invites shipper fraud against banks who finance on the basis of Bills of Lading.

3. The result also would disrupt LC practice.

[JEB/cbw]

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