Article

Note: To fulfill its obligation to deliver footwear to Buyer, Artist Fashion Inc. (Consignee), Seller, Carewins Development (China) Ltd (Shipper), contracted for carriage from Hong Kong to Los Angeles with Bright Fortune Shipping Ltd. and Hecny Shipping Ltd. (Carriers), which are described as freight forwarders who "acted as the contractual carrier in relation to the relevant shipments." Although not discussed in the opinions, it appears that the freight forwarders signed the bills of lading as the carrier, making them non-vessel owning common carriers. Carriers issued two sets of straight bills of lading (not consigned to order) consigned to Consignee/Buyer who was also named as a notify party.

The sales contract provided that payment was to be FOB and that following shipment, Consignee/ Buyer was to send payment to Shipper by telegraphic transfer, at which time Shipper was to forward the original bills of lading to Consignee. At the time of delivery, the goods were discharged to Consignee/ Buyer's delivery agent, Trans-Union Group, Inc., and then transported to Consignee/Buyer's warehouse, although the bill of lading was never presented. Soon thereafter, U.S. Marshalls seized the goods based on a trade mark infringement allegation by Burberry Ltd., a suit that was settled out of court. Consignee/Buyer, however, never paid Shipper for the goods. Accordingly, Shipper sued Carriers for its loss of US$873,028, alleging breach of contract and conversion based on Carriers' delivery to Consignee/ Buyer without demanding production of the bills of lading.

The Hong Kong Court of First Instance, Stone, J., held that delivery of the goods without production of the bills of lading constituted a breach of contract; however, the court also concluded that the liability exclusion clause in the bills was applicable, and thus found for Carriers, dismissing Shippers claim. On Shipper's appeal, the Court of Appeal reversed, concluding that the exclusion clause did not exempt Carriers from liability. On appeal by Carriers, the Court of Final Appeal, Ribeiro, PJ, Bokhary and Chan, PJJ, and Litton and Gault NPJJ, unanimously dismissed the appeal, allowing the decision of the intermediate appellate court to stand.

The opinions of the Justices focused on two issues, namely whether the carrier was entitled to release the goods without receipt of a straight bill of lading under maritime law and practice and, if so, whether the exclusion clause in the bills of lading at issue in this case excluded this obligation.

The decision was contained in detailed opinions by Bokbury, PJJ; Ribero, PJ (with whom Chan, PJJ and Gault, NPJ, concurred without further opinion); and Litton, NPJ, who also expressed agreement with Ribero, PJ.

1. Must the Bill of Lading Be Presented?

On the question of whether the bill of lading must be presented, Bokbury, PJJ, took the position that delivery only on presentation of the original bill of lading was an "incident" of the carriage contract and "therefore an implied term thereof."

On this point, Ribero, PJ, stated that, "It has long been established law in relation to order bills that the carrier is both entitled and bound to refuse to release the goods shipped to a person claiming delivery save against production of an original bill of lading covering those goods." This "Presentation Rule" was explained as resulting from the character of the bill of lading, whether straight or order, as a document of title and the need for a mechanism to protect the rights of the shipper/seller to payment. He rejected Carriers' argument that the rule was only necessary for order bills of lading. Rejecting this argument as "unsound," the Justice stated:

"There is no valid reason why the essential characteristic of a bill of lading as a document of title should depend on whether it is negotiable and it is wrong to suggest that the absence of negotiability renders the requirement of production of the original bill an 'empty formality'. As noted above, the shipper's ability to withhold the bill of lading-the metaphorical key to the warehouse-pending payment by the consignee is a highly important feature of the recognised mercantile arrangement. This applies just as much to the relationship between shipper and consignee under a straight bill as between the parties to an order bill. It is true that a carrier is able to see who is the intended consignee on the face of the bill, but that does not mean that he is justified in assuming that such person is entitled, as against the shipper, to possession of the goods. If the named consignee is unable to produce the bill of lading it may very well be because he has not paid for the goods and is not entitled to possession, as numerous decided cases show."

He also stated that:

"It is in my view clear that the terms of the bills of lading issued in this case demonstrate a contractual intention that delivery should only be made against presentation of the original bills, that is, that they should be treated no differently from order bills in that context...If the parties had intended that there should be no need for production of the bill, they could easily have chosen to utilise a sea waybill which permits delivery merely on proof of the recipient's identity. But an inspection of the bills issued by the carriers reveals that they are documents having all the features of a bill of lading intended to function as a receipt for the goods shipped, as a memorandum of the contract of carriage and, most importantly, as a document of title. Each document calls itself a 'bill of lading' with a bill of lading number. It has the word 'ORIGINAL' prominently on the form. It sets out the details of the goods covered, the port of loading and the port of discharge with freight payable at destination. On its reverse, it contains detailed terms regarding the conditions of carriage usually found in bills of lading. And most significantly, it contains an attestation clause stating as follows: 'Received for shipment in apparent good order and condition. Terms of this Bill of Lading continued on reverse side hereof. In Witness Whereof, the carrier by its agents has signed three (3) original Bill of Lading all of this tenor and date, one of which being accomplished the others to stand void.'"

Noting an observation by Lord Bingham of Cornwall in The Rafaela S [2005] 2 AC at 444 to the effect that the practice of issuing straight bills in sets would otherwise be rendered meaningless, he added:

"The traditional practice has been for bills of lading to be drawn in a set of three originals. One bill from the set might be kept by the carrier as a record of the bills it has issued and as an aid to verifying that bills subsequently presented are indeed bills from the same set. The shipper might send one of the other original bills to the receiver as the document of title entitling him to take delivery of the goods while keeping for himself the third original as a precaution against loss of the document sent abroad. Being a document of title, loss of all the bills in the set (if they were not split up) might cause major difficulties in relation to getting delivery of or otherwise dealing with the goods." [footnotes omitted]

He concluded that:

"The foregoing discussion leads to the conclusion that straight bills of lading share all the characteristics of order bills save only that after transfer by the shipper to the named consignee, straight bills are not 'negotiable' in that they are not further transferable by indorsement and delivery so as to constitute third persons holders of the bill. Straight bills therefore function, in my opinion, as the carrier's receipt for the goods shipped; as a memorandum of the terms of the contract of carriage; and as a document of title to the goods, enabling the consignee to take delivery at their destination against production of the bill. 41. It is my view, in line with the views of Stone J and the Court of Appeal, that as a matter of principle and in the light of persuasive authority, it is the law of Hong Kong that a carrier of goods shipped under a straight bill of lading is potentially liable for breach of contract or in conversion if it releases those goods without production of the original bill of lading. In the present case, by delivering the goods to [Consignee] without surrender of any bill of lading, the carriers are, unless exempted from liability by the exclusion clause relied on, liable to [Shipper] for breach of contract and conversion."

Litton, NPJ, deferred to the thorough analysis of the trial and appellate courts.

2. Was the Exclusion Clause Effective?

Exemption clause 2(b) provided that, "'[T]he Carrier shall be under no liability in any capacity whatsoever for...misdelivery of...the Goods however caused whether or not through the negligence of the Carrier, his servants or agents or sub contractors. . .'"

While recognizing that this term can be excluded, Bokbury, PJJ, concluded that such exclusion

"is not necessarily achieved simply by excluding liability for misdelivery whether or not negligent...The concept of misdelivery whether or not negligent can, as a matter of language, extend to delivery without presentation of an original bill of lading. But it can also be fairly understood to mean something less radical. It is, in the present context, not free from ambiguity. And such ambiguity defeats the carriers' reliance on the exclusion clause which they invoke."

Ribiero, PJ, noted that its enforceability turns on pure construction where there is no inequality of bargaining power and that a clause excusing liability for negligence must be clear and unambiguous and will be construed against the drafter (contra proferentem). In analyzing clause 2(b) in light of the purpose of the contract to provide for delivery of the goods against presentation of the original bill, he concluded,

"It is plain that cl 2(b) is susceptible to more than one meaning and that it can be given adequate content as an exemption clause which operates without nullifying the cardinal obligation embodied in the presentation rule. Given its natural and ordinary meaning, the word 'misdelivery' is capable of covering a range of situations which all involve the cargo being delivered to the wrong person. But many of those situations will not involve a conscious disregard of the presentation rule on the carrier's part. Thus, as we have seen, a carrier might be deceived into releasing the cargo without negligence against a well-executed forgery of the bill of lading..."

Litton NPJ stated that clause 2(b) "must be construed in the context of the bill of lading seen as a whole." He then asked: "

Are the general words in cl 2(b) precise enough to exempt the carrier from liability in such a case? It would seem very odd if that were so. On the face of the document the carrier acts at his peril by delivering the goods without production of the bill of lading; turn the document over, and it says the carrier acts with impunity by so doing. The parties cannot be deemed to have achieved such a bizarre result, by the general words used in cl 2(b). In my judgment the words in cl 2(b) are not precise enough to exempt the carrier from liability when, with eyes open, it delivers the 23 containers without production of the bill of lading."

[JEB/anf]

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