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Note: PT Awindo (Seller) agreed to sell frozen swordfish to Fishco BVBA (Broker) for USD 112,250.00. The sale was financed by a letter of credit issued by the Bank of Central Asia (Issuer 1) that matured 45 days after the bill of lading date. The same day, Broker agreed to re-sell the cargo to Carlos Soto Sau (Ultimate Buyer) for USD 118,500, which was financed by another letter of credit that matured 60 days after the bill of lading date and was issued by Banco Santander (Issuer 2).

The LC procured by Broker (Broker LC) included a clause that: “If before maturity date applicant presents copy of rejection certificate then payment will be cancelled and applicant will release the cargo to beneficiary”. The LC procured by Ultimate Buyer (Buyer LC) did not include a similar rejection clause.

AP Moller-Maersk AS (Carrier) transported the cargo from Indonesia to Vigo, Spain. The bill of lading was issued on 14 November 2012 “To Order” and named Seller as the shipper and Ultimate Buyer as the notify party. Seller endorsed in blank the bill of lading and presented the documents under the Broker LC to Issuer 1.

Broker subsequently delivered the bill of lading and the other documents to Issuer 2, as required by the Buyer LC. Upon reviewing the bill of lading in conjunction with other shipping documents, Issuer 2 informed Ultimate Buyer of discrepancies, in particular that the quality certificate was missing. Ultimate Buyer waived these discrepancies and obtained the documents, including the bill of lading, from Issuer 2. One of the documents provided, under the heading of “Terms of Delivery & Payment”: “CFR Vigo, Spain & LC 45 days after shipment with rejection clause”.

The Port Health Authority at Vigo, Spain rejected the cargo because its temperature was too high. Due to this rejection, the fish could no longer be sold within the European Union. Broker promptly presented its rejection certificate to Issuer 1, who cancelled the Broker LC. Ultimate Buyer did not reject the cargo, but instead salvaged and sold the goods to Broker for USD 11,853.24. Broker then drew on the Buyer LC and USD 118,532.38 was debited to Ultimate Buyer’s account. Notably, Seller sued Carrier for the resulting cargo damage. Carrier entered into a settlement agreement with Seller, which stipulated that Seller had acted on behalf of “any other parties interested in the cargo”. Ultimate Buyer subsequently sued Carrier for the value of the cargo less its salvage value.

In light of its settlement agreement with Seller, Carrier asserted at trial that Seller, as lawful holder of the bill of lading, was the only party entitled to sue it. In response, Ultimate Buyer asserted that it was in fact the lawful holder of the bill of lading and that it paid for the cargo, suffered losses due to its damage, and was entitled to recovery. The Commercial Court, Queen’s Bench Division, Mr. Justice Eder, noted that five preliminary issues must be resolved in order to determine whether Ultimate Buyer was entitled to sue Carrier. The court found in Ultimate Buyer’s favor with respect to each.

The first three preliminary issues were: (1) Whether Ultimate Buyer paid for the cargo; (2) Whether Ultimate Buyer was the lawful holder of the bill of lading at all relevant times; and (3) Whether Ultimate Buyer was at all relevant times entitled to possession of the cargo. The Court noted it was common ground that these issues were answered in the affirmative.

The fourth preliminary issue concerned whether Ultimate Buyer was, at all relevant times, owner of the cargo. Ultimate Buyer contended that the answer was yes for five reasons. First, Seller did not reserve any right of disposal. Second, Seller could be “adequately assured of payment” because of the bank’s promise. Third, the presence of a rejection clause is irrelevant as to whether the property was intended to be transferred. Fourth, both Broker and Ultimate Buyer “intended property in the cargo to pass under their contract when the bill of lading was delivered to [Issuer 2]/[Broker]”. Fifth, the property was intended to be transferred when Ultimate Buyer “waived the discrepancies in the shipping documents and the letter of credit became irrevocable”.

Carrier contested Ultimate Buyer’s contentions on the basis that the property had remained with Seller because payment was delayed until 45 days after shipment, Broker had the ability to reject the cargo, and Broker did so without paying the contract price. Based on those facts, the court noted that it was “never the intention for property in the cargo to pass to [Broker] until, at least, [Broker] paid and [Seller] received the contract price”. Nonetheless, under s25(1) of the Sale of Goods 1979 Act, the court resolved that the fourth preliminary issue in Ultimate Buyer’s favor because Ultimate Buyer had “received the bill of lading ‘in good faith and without notice’ of the right of the seller in the goods.”

The final preliminary issue questioned whether Ultimate Buyer suffered any loss as a result of the alleged damage. The court noted the “contract-breaker is liable so long as his breach was ‘an’ effective cause of his loss: the court need not chose which cause was more effective.” Despite that Ultimate Buyer’s loss may have been caused in part by Broker, the court found that Ultimate Buyer’s loss was effectively caused by Carrier.

[ABS/mjb]

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