Misdelivery Of Cargo After Discharge

The Court of Appeal upheld the earlier decisions of the tribunal and the High Court in favour of the carrier that the 12-month time bar indeed applies to misdelivery claims after discharge.

An earlier English case - The Alhani [2018] EWHC 1495 Comm.  -  had decided that the 12-month time bar in Article III rule 6 of the Hague Visby Rules applied to misdelivery claims but in this case the misdelivery was simultaneous with discharge during a ship-to-ship transfer. 

Whether the 12-month time bar applies to a misdelivery after the cargo had been discharged was addressed in the Fimbank case, with the Court of Appeal upholding earlier decisions of an arbitral tribunal and the High Court in favour of the carrier that the time bar applies to misdelivery claims after discharge.

Factual background

A cargo of approximately 85,510 metric tons of steam (non-coking) coal was shipped in bulk on board the vessel “GIANT ACE” in Indonesia and 13 bills of lading dated either 4 or 14 March 2018 were issued. The appellant, FIMBANK PLC (“FIMBANK”), was the holder of all 13 bills of lading and the respondent, KCH Shipping Co Ltd was the demise charterer of the vessel and the carrier under the bills of lading. 

The bills of lading were on the Congenbill (1994) form and incorporated the terms of a voyage charterparty dated 20 February 2018. The voyage charterparty was governed by English law and provided, in clause 13.10, the following: “Thus Charterparty shall have effect subject to the Hague-Visby Rules, which shall apply to any bill of lading issued under this Charterparty…”

FIMBANK had financed the purchase of the cargo but remained unpaid and eventually attempted to exercise its security, as holder of the bills of lading, by demanding delivery of the cargo. By that time, the cargo had already been discharged at the port of Jaigarh, India and had been collected from a customs bonded stockpile by Indian receivers. On 24 April 2020, over two years after completion of discharge, FIMBANK brought a claim in arbitration against the carrier under the bills of lading. 

The carrier contended that its liability was extinguished pursuant to Article III, Rule 6 of the Hague-Visby Rules as no suit against it was commenced within one year of the date when the goods should have been delivered. Article III, Rule 6 provides: 

“the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered”.

FIMBANK, on the other hand, asserted that its claim was not time-barred as the alleged misdelivery had occurred after discharge and the Hague-Visby rules (including Article III, Rule 6) did not apply after discharge. 

The issue of the time-bar was dealt with as a preliminary issue in arbitration and on appeal by the High Court ruled in favour of the carrier; that the 12-month time bar continues to apply after discharge of the cargo and until the receivers take delivery of the cargo from the stockpile at a later stage. 

FIMBANK obtained permission to appeal to the Court of Appeal. The issues for decision by the Court of Appeal were the following:

1. Does Article III, Rule 6 of the Hague-Visby Rules apply to a claim for misdelivery occurring after discharge of the cargo has been completed?
2. If not, was there an implied term in the bills of lading to the effect that the Hague-Visby Rules including Article III, Rule 6 would apply to govern the parties’ relationship after discharge of the cargo?
3. If the answer to either of these questions is “yes”, does clause 2(c) of the Congenbill form – which provides” The Carrier shall in no case be responsible for loss and damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel of [which must mean “or”] while the cargo is the charge of another Carrier, nor in respect of deck cargo or live animals.”- have the effect of disapplying the time bar in Article III, Rule 6?

The Court of Appeal judgment

The Court of Appeal held that the Hague-Visby Rules, including the time-bar provision under Article III, Rule 6, should be interpreted in accordance with the principles set out in the Vienna Convention on the Law of Treaties 1969 - “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. The Court of Appeal further stated that recourse may be had to “supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion” in order to confirm the meaning when “ambiguous or obscure”, although nothing less than a “bull’s eye” the preparatory works (“travaux préparatoires”) would do.

The Court of Appeal, by referring to the preparatory works for the Visby amendment to the Hague Rules, held that the text of the Rules embodied the 12-month time bar period, even for claims grounded on the delivery of the goods to a person not entitled to them, i.e. misdelivery claims. While FIMBANK asserted that the Rules applied only to claims for misdelivery occurring during the voyage or simultaneously with discharge, the Court of Appeal stated that in the modern shipping world misdelivery after discharge is the paradigm case and, as a matter of fact, the practice of taking delivery at the ship’s rail is now rare. All the above, stated the Court of Appeal, had been understood by the drafting committee of the Rules whose instructions were to prepare and submit a draft amendment to the time-bar provision of the Rules to provide for a one-year limitation time to sue “in the broadest possible terms” which would “include the case of wrong delivery.” 

The Court of Appeal further referred to The Alhani [2018] EWHC 1495 Comm, where it was noted that “the debate reflected in the travaux préparatoires appears to have been as much about whether article III, Rule 6 should apply to misdelivery occurring after the period of Hague Rules responsibility than [sic.] whether it should (or did) apply to misdelivery at all” and concluded that, in choosing a time limit deliberately expressed “in the broadest possible terms”, the drafting committee plainly intended that the limit should apply to misdelivery even occurring after discharge.

In light of the above, the Court of Appeal held that the 12-month time bar period under Article III, Rule 6 of the Hague-Visby Rules applied to misdelivery claims after discharge.

On the second issue, the Court of Appeal concluded that, given it was held that Article III, Rule 6 of the Hague-Visby Rules does apply on its own terms to the misdelivery claim in question, it was unnecessary to reach a conclusion on this issue.

On the third and final issue, the Court of Appeal held that clause 2(c) of the Congenbill form does not disapply the Hague-Visby time-bar for the period after discharge.

Comments

This judgment brings clarity to a previously controversial topic as a shipowner (or charterer if the contractual carrier) that has issued a bill of lading incorporating the Hague-Visby Rules will now be able to “close its books” 12 months after the completion of discharge. Equally, charterers that have agreed to indemnify shipowners against the consequences of discharging the cargo without presentation of bills of lading should also be able to “close their books” if the shipowner has not received a claim for (alleged) misdelivery within 12 months of discharge. Last, it should be noted that the Court of Appeal refused the FIMBANK’s permission to appeal to the Supreme Court. FIMBANK proceeded to file an application with the Supreme Court for permission to appeal and it now remains to be seen whether the Supreme Court will grant such permission and, if so, whether the Court of Appeal’s judgment will be overruled.