UK: Switching Bills - The Rights of The Original Consignee

A.P. Moller - Maersk A/S (trading as "Maersk Line") v Sonaec Villas Cen Sad Fadoul [2010] EWHC 355

It is clear that owners will be taking considerable risks where new bills of lading are issued without surrender of the original set. This recent decision of the High Court, one of very few English authorities on the practice of switching bills, illustrates the difficulties that can arise even where the original bills are surrendered prior to issue of a second set and the importance of ensuring that the shipper is clearly identified in the bill.

The First Bill

Yekalon Industry Inc sold a consignment of tiles to Sonaec Villas in Benin. The goods were booked and shipped on Maersk's liner service through local agents, High Goal Logistics GD Limited. A bill of lading was issued on 17 January 2008 (the "First Bill") naming Sonaec as consignee and the shippers as B&D Co Ltd P/C ("par compte de") Vernal Investment ("Vernal") and Yekalon. Vernal was a subsidiary of Sonaec. The port of discharge was Benin.

The Chinese Proceedings

Shortly after the First Bill was issued, a dispute arose in China as to who was its lawful holder. Yekalon who had not been paid by Sonaec asked High Goal for the bill, but High Goal refused on the basis that they had received instructions from B&D. Yekalon then applied to the Guangzhou Maritime Court for delivery of the original First Bill and a declaration that Yekalon was entitled to possession of it, which declaration was granted.

The Second and Third Bill

Yekalon surrendered the original bills to Maersk and requested a new bill (the "Second Bill") be issued to the order of Yekalon. Yekalon then found a new buyer and also surrendered the Second Bill for a further replacement bill of lading, with Hondujres SA now named as consignee and with delivery in Honduras.

The Benin Proceedings

On 27 February, Sonaec commenced proceedings in Benin, claiming the goods were sold on an FOB basis; property had passed on loading; they were the owners of the cargo and entitled to delivery of the same. Maersk disputed the Benin court's jurisdiction, the First Bill being subject to an exclusive English law and jurisdiction clause and asserted that any rights which Sonaec may have had under the First Bill had been brought to an end when the First Bill was cancelled by the rightful shipper and replaced. Despite these submissions, the Benin Court made an interim ruling requiring Maersk to ship the cargo to Sonaec in Cotonou and imposing a daily fine on Maersk of US$4,800.

The English Proceedings

Maersk then sought a declaration from the High Court of Justice in London that:

Sonaec were not represented at the hearing in the High Court.

Jurisdiction

The exclusive jurisdiction clause would be binding on Sonaec only if Sonaec was a party to the contract contained in or evidenced by the First Bill. This depended on whether Sonaec was a party to whom rights would pass under the Carriage of Goods by Sea Act 1992 ("COGSA 1992") and, if so, whether upon surrender of the First Bill Sonaec continued to be bound by the exclusive jurisdiction clause.

The First Bill was not "to order", but identified Sonaec as a named consignee. It did not therefore fall within the definition of a bill of lading for the purpose of COGSA 1992, as being a document that was capable of transfer by indorsement or delivery. However, it did fall within the definition of a seaway bill for the purpose of COGSA 1992, being a receipt for the goods, containing or evidencing a contract for the carriage of goods by sea and identifying the person to whom delivery of the goods was to be made.

Under Section 2.(1)(b) of COGSA 1992, the person to whom delivery of goods to which a seaway bill relates is to have "transferred to and vested in [it] all rights of suit under the contract of carriage as if [it] had been a party to that contract". Consequently, at some stage Sonaec was a party to the First Bill, including the law and jurisdiction clause.

Effect of Surrender of the First Bill on the Exclusive Jurisdiction Agreement

Maersk were also seeking a declaration that any rights of suit that Sonaec may have had under the First Bill had ceased to exist upon surrender of that Bill. It was therefore necessary for the Court to determine whether Sonaec and Maersk continued to be bound by the jurisdiction clause following surrender of the First Bill. On this issue, the Judge noted that it is well established that arbitration agreements are ancillary to and will survive termination of the main contract. Although no authority had been cited to him on this issue, he held that similar principles applied to an exclusive jurisdiction clause. Consequently, even if Sonaec had ceased to have rights under the First Bill upon its surrender, the law and jurisdiction clause survived and any claim under the First Bill must be brought in England.

Did surrender of the First Bill bring to end Sonaec's rights under that Bill?

The transfer of rights under COGSA 1992, whether under a bill of lading or a seawaybill, is expressly stated to be "without prejudice to any rights which derive from a person's having been an original party to the contract contained in or evidenced by, a seaway bill" (section 2(5)). Consequently, a shipper who is and remains party to the contract of carriage does not lose his right vis-à-vis the carrier to divert the goods, as he may wish to do if he is not paid for them. Maersk argued that if a shipper can re-direct the goods, by changing the terms, the shipper must also be entitled to agree with the owners to terminate the contract and substitute a new contract of carriage contained in a new bill of lading, with a new consignee. The Judge agreed, holding there was no reason that the shipper could not agree with the carrier to replace the original bill of lading with another one.

However, Maersk faced a further difficulty insofar as it was not clear that it was Yekalon that was the original shipper and, therefore, the party entitled to re-direct re-delivery. The shipper had been described on the First Bill as "B&D Co Ltd [pour compte de] Vernal & Yekalon". As Vernal was an associate company of Sonaec, Vernal and Yekalon were parties with potentially antithical interests and it was not clear whether B&D were purporting to act as agent for both and, if so, in what respect.

There was conflicting evidence in the Chinese and Benin proceedings as to the precise sequence of events leading to the shipment of cargo and the issue of the bill of lading. Rather than reach a conclusion on this evidence, the Judge determined the matter on the basis that the Chinese Court had ordered delivery of the First Bill to Yekalon on the footing that Yekalon was the shipper and entitled to the First Bill. In these circumstances, the Judge held that Yekalon became the party entitled to the rights of the shipper under the First Bill and that Yekalon was, therefore, the party entitled to re-direct delivery or cancel the First Bill. Consequently, Maersk was entitled to a declaration that any rights of Sonaec under the First Bill, were brought to an end prior to 18 February 2008.

Comment

The decision of the High Court will provide some reassurance to owners regarding the rights of a consignee under English law where an original bill of lading or seaway bill has been switched. However, the facts highlight the risk of proceedings being brought by the consignee under the original bill in another jurisdiction, in which in English judgment may ultimately be of limited use to the owners defending such a claim.

Finally, the case is a useful reminder of the difficulties that can arise and additional costs that may result, here both in proceedings in China and in England, where the description of the shipper is not sufficiently clear to enable that party to be identified with certainty. In this case, the Judge accepted the Chinese Court's ruling that Yekalon was the shipper under the First Bill. However, it is not apparent from the judgment that Sonaec were party to those Chinese proceedings and, had they been represented and put forward evidence in the London High Court proceedings, it is possible that a different conclusion may have been reached.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.