Article

Note: Nepal Food Corporation (Seller) and Ngoh Hong Hang Pvt. Ltd., Singapore (Buyer/Charterer) entered into a contract for the sale of 10,000 MT of parboiled rice to be shipped in two shipments. To assure payment, Buyer/Applicant provided a commercial letter of credit in favor of Seller/Beneficiary issued by Bangkok Bank Ltd., Hong Kong (Issuer) and to be confirmed by Rashtriya Banijya Bank, Kathmandu (Confirmer). The LC provided that it was payable upon presentation of Seller/Beneficiary's commercial invoice and bills of lading. The LC validity period was extended various times, finally to 15 January 1979.

Buyer/Applicant entered into a charter-party agreement with UPT Imports Exports Ltd. (Ship Owner) to transport 5,000 MT of rice (First Shipment) from Seller/Beneficiary in Calcutta to Buyer/Applicant in Penang, Malaysia. On 9 November 1978, Shaw Wallace & Co. (Ship Owner's Agent) served a notice of readiness that the vessel was fit for loading, but Seller/Beneficiary had insufficient goods at the time. The vessel was scheduled to be shifted to another berth on 16 November 1978, but due to a workers' strike, the re-berthing was delayed until 28 November 1978, at which date Seller/Beneficiary accepted the notice of readiness. M/s Grand Fortune Singapore Private Ltd. (Ship Owner's General Agent) instructed Ship Owner's Agent not to issue bills of lading to Seller/Beneficiary, believing the cost of demurrage to be Seller/Beneficiary's liability.

On 17 December 1978, Asian Agency (Seller/Beneficiary's Agent) delivered the mate's receipts to Ship Owner's Agent and requested bills of lading. Buyer/Charterer/Applicant, however, instructed Ship Owner's Agent not to issue the bills of lading until Seller/Beneficiary furnished a bank guarantee to cover the cost of demurrage. The vessel arrived in Penang on 18 December 1978, and Buyer/Applicant took possession of the goods without documents of title on 22 December 1978. On 25 January 1979, Ship Owner's Agent gave Seller's Agent three signed bills of lading. Because the bills of lading were issued ten days after the LC had expired, Seller/Beneficiary was unable to draw on the LC.

For the subsequent shipment of 4,500 MT of parboiled rice (Second Shipment), which was to be paid by the same LC, Seller/Beneficiary once again could not complete loading on time for want of sufficient goods. Buyer/Applicant similarly instructed Ship Owner's Agent not to issue the bills of lading until Seller/Beneficiary had provided a bank guarantee to cover the cost of demurrage as before. Seller/Beneficiary again sued Ship Owner and Ship Owner's Agent, and both the Single Judge and Division Bench ruled in favor of Seller/Beneficiary on the same grounds as the suit pertaining to the First Shipment.

Seller/Beneficiary sued Buyer/Applicant in Singapore for the value of the goods supplied in the First and Second Shipments, but Buyer was wound up in insolvency before Seller could recover any damages on the judgment. Seller/Beneficiary also sued Ship Owner and Ship Owner's Agent in the Calcutta High Court, "claiming the value of the goods as damages, by reason of the delay in issuing the bills of lading and the wrongful delivery of the cargo to [Buyer/Applicant] without the production of bills of lading." Ship Owner did not defend the claim. The Single Judge awarded damages to Seller/Beneficiary against Ship Owner's Agent. Ship Owner's Agent appealed, and the Division Bench of the Calcutta High Court dismissed the appeal. Ship Owner's Agent again appealed to the Supreme Court of India. In an opinion by Raveendran, J., it affirmed.

Ship Owner's Agent argued that it "had merely acted as the agent of [Ship Owner] ... and that it could issue the bills of lading only on the instructions of and under the authority of [Ship Owner]. [Ship Owner's Agent] contended that as it merely acted on the instructions of [Ship Owner], as its agent, it could not be held liable for the acts or omissions of [Ship Owner]."

In regard to the First Shipment, the Supreme Court affirmed the Single Judge's and Division Bench's rulings that Ship Owner's Agent's withholding of the bills of lading constituted (1) a breach of Ship Owner's Agent's statutory duty under the Carriage of Goods by Sea Act, 1925, (2) negligence in performing its legal duty in common law, and (3) conversion of the bills of lading. As such, Ship Owner's Agent was jointly and severally liable to Seller/Beneficiary for the value of the goods.

Quoting Halsbury's Laws of England (4th ed.), Vol. 43(2) Shipping and Navigation, the Supreme Court opinion stated that "[t]he person who at the time of shipment is the owner of the goods is entitled to receive a bill of lading" when demanded. The Judge reasoned that since Seller/Beneficiary was the owner of the goods, it was entitled to the bills of lading upon demand, adding that "[i]f there was any delay for which [Seller/Beneficiary] was liable, that was a matter to be sorted out by [Buyer/Applicant] making a claim against [Seller/Beneficiary]."

As for Ship Owner's Agent's argument that as agent, it was not liable, the Supreme Court stated that not only does the Carriage of Goods by Sea Act, 1925 statutorily obligate Ship Owner's Agent to issue the bills of lading, but it is the "well recognized practice" that the agent of the ship owner issues bills of lading. Furthermore, the Judge noted that Ship Owner's Agent had held itself out as having authority to issue bills of lading and ultimately did issue the bills of lading, concluding that "it is too late in the day for [Ship Owner's Agent] to contend that it was not liable to issue the bills of lading."

For the Second Shipment, however, the Supreme Court set aside the judgment, noting that "the facts are completely different here." Unlike for the First Shipment, here, Seller/Beneficiary did not tender the mate's receipts and request bills of lading from Ship Owner's Agent until after the LC had expired; therefore, Ship Owner's Agent's "delay of nine days in issuing the bills of lading had no relevance. ... [E]ven if the bills of lading had been issued forthwith ..., it would not have been of any assistance." The Judge concluded, therefore, that "it cannot be said that there was any default, negligence or delay on the part of [Ship Owner's Agent] in issuing the bills of lading" with regard to the Second Shipment.

[JEB/agj/jdc]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.