Hong Kong - Conflicting Decisions on Delivery under Straight Bills of Lading

Hong Kong - Conflicting Decisions on Delivery under Straight Bills of Lading.   

The case of Carewins Development v Bright Fortune (2006) HKEC 1403 has again raised the issue whether presentation of a straight bill of lading is required for delivery of cargo¹.  

The decision in Carewins covered related actions which were on their facts identical. Briefly the claims were for misdelivery of a number of containers of footwear products shipped from Hong Kong to Los Angeles. The containers were shipped pursuant to straight bills of lading, naming the consignee and buyer of the goods (party “A”) without the words 'to order'. The shipper (Party “C”) and A had been involved in over 100 transactions over the previous two years.

The containers were delivered to A by road under the agency of T, who was contracted by the defendant (party “B”) pursuant to a sea freight non-exclusive agency agreement to handle the containers upon arrival at Los Angeles. B was the forwarder and had contracted with the ocean carrier and issued the bills of lading. The containers were delivered to A’s premises without presentation of the bills of lading but shortly thereafter were seized by US officials as a result of action taken by Burberry Limited against A for infringement of trademark. This action was compromised on terms that did not allow the footwear products to be returned to A. Therefore A did not pay C and C commenced proceedings in Hong Kong against the B for mis-delivery.

B sought to distinguish between straight and ‘to order’ bills of lading. They argued that the so called ‘presentation’ rule was required in the case of ‘to order’ bills of lading because of (i) ‘to order’ bills of lading are transferable, and as a consequence (ii) the carrier is unable to determine to whom goods should be delivered in the absence of presentation of the bill of lading. However, this rule did not apply to straight bills of lading whereby the carrier promises a shipper to deliver the goods to a named consignee identified in the bill of lading. It was further argued that the presentation rule should only apply where the bill of lading expressed a clear contractual intention that delivery would only be made against production of an original bill².  

B also sought to rely on the decision of Mr Justice Waung in the “Brij”³, an earlier Hong Kong case⁴. In that case Mr Justice Waung relied on an extract from Benjamin on Sale of Goods⁵] that provided 'the essence of straight bills is that they are not negotiable and the contractual mandate is to deliver to the named consignee without production of the original document.' 

Mr Justice Stone was reluctant to rely on such line of argument in light of the contrary and more recent authorities of Voss v APL Co Pte Ltd⁶ and The “Rafaela S”⁷. The reasoning of the Court in the Voss decision was based on the distinction between straight bills of lading and seawaybills. The Court at first instance held that a 'shipper who...asks for the issue of a straight bill of lading even though the alternative of a seawaybill is open to him, wants to retain some degree of control over the delivery of the goods.' This reasoning was affirmed by the Singaporean Court of Appeal, which held the main characteristics of a bill of lading are (i) that it is negotiable and (ii) a document of title. Therefore, it did not necessarily follow that in the absence of the first characteristic the second should also fail. As a document of title the bill of lading offers the seller of goods/issuer of documentary credit security against default in payment by the buyer and an assurance to the buyer that the goods had been shipped prior to payment. 

The central question raised in the “Rafaela S” was whether a straight bill of lading was a bill of lading or similar document of title for the purposes of the Hague-Visby Rules. In the Court of Appeal⁸ Rix LJ, like the Court of Appeal in Voss, raised concerns over evidence of payment and commented obiter that presentation should be necessary. In the House of Lords⁹, Lord Bingham observed that the requirement that an original bill of lading be surrendered in exchange for the goods ‘…does not lack a commercial rationale in the case of a straight bill of lading’ and quoted Bowen LJ in Sanders v Mclean (1883) 11 QBD, in that the bill of lading is 'a key which in the hands of a rightful owner is intended to unlock the door of the warehouse'¹⁰. He further commented that while in the ‘Rafaela S’ he had no difficulty in regarding the bill of lading as a document of title, given that the bill of lading in that case expressly provided for presentation to obtain delivery; 

‘.. But like Lord Justice Rix I would, if it were necessary to do so, hold that production of the bill of lading is a necessary pre condition of requiring delivery even where there is no express provision to that effect’      

Whilst Justice Stone also indicated his willingness to follow the obiter comment of Lord Bingham he also set out another basis for requiring presentation. In Carewins the bills of lading contained the first line of  an attestation; 'In witness whereof, the carrier by its agents has signed three (3) original bills of lading all of this tenor and date, one of which being accomplished the others to stand void'. The bills omitted the usual second line of the clause; 'one of these bills of lading must be surrendered duly endorsed in exchange for the goods or delivery order'. However, the omission of these words did not defeat the presentation rule, both for the reasons highlighted above and on the basis that the meaning of 'accomplish' was quite clearly akin to presentation. In this the Court relied on the judgment of Mr Justice Clarke in the “Sormovskiy”¹¹. 

It should though be borne in mind that the facts of the dispute in the “Brij” were distinct from Carewins in one important respect. In the “Brij” the plaintiff contracted for the carriage of goods with a freight forwarder, who issued negotiable ‘house’ bills of lading. The freight forwarder in turn contracted with the ocean carrier, who issued straight bills of lading naming the freight forwarder/their agents as shipper and consignee. There was no contractual relationship between the plaintiff shipper and the defendant ocean carrier. The important distinction in the “Brij” was the existence of the negotiable ‘house’ bill of lading which was deemed to be the document of title for the purposes of obtaining payment under the buyer’s letter of credit.

In any event, although the two first instance decisions in Hong Kong are in conflict, it is fair to conclude that the weight of judicial comment, albeit obiter, is to confirm that the presentation rule applies equally to ‘to order‘ and straight bills of lading so that production of the bill of lading is required prior to delivery of the goods. This is perhaps not surprising in view of the role of both forms of bill of lading in international trade; as a document of title and as security to both seller and buyer under a sale contract. It would be useful, as noted by Justice Stone, for this issue to be considered formally by the Appeal Court in Hong Kong, or in an appropriate case in England. In the "Rafaela S" the House of Lords did not need to deal with differing treatment of a straight bill of lading under COGSA 1971 and 1992 and left open the question whether there should be delivery of cargo only against presentation of a straight bill of lading where the bill itself is silent as to whether or there should be presentation of the bill, albeit such bills probably are few and far between.  

In the interim, it is prudent for carriers, regardless of the jurisdiction in which they operate, to err on the side of caution and insist on production of an original (negotiable or straight) bill of lading prior to delivery, unless they have received clear legal advice to the contrary. Member's who find themselves in this position are advised to contact the Club for advice. 

For an update see Hong Kong – Delivery under Straight Bills of Lading Clarified published in September 2009