June 1999 (Updated January 2000)
(Sea Venture Volume 18)
The English High Court was recently asked to consider where liability should rest when a shipowner delivers cargo against presentation of a fraudulent bill of lading (Motis Exports Ltd. v Dampskibsselskabet AF 1912 Aktieselskab and Aktieselskabet Dampskipsselskabet Svendborg¹).
The facts of the case were as follows. The plaintiffs shipped various consignments of goods from China and Hong Kong for delivery at Cotonou and Abidjan on ships owned or operated by the two defendants who together ran a liner service under the name of Maersk Line. The goods were carried under Maersk Line bills of lading which recorded that the goods were consigned "to order" and contained the following clause:
"5. CARRIER’S RESPONSIBILITY
….
3. Carriage to and from Countries other than the USA
….
(b) where the carriage called for commences at the port of loading and/or finishes at the port of discharge, the Carrier shall have no liability whatsoever for any loss or damage to the goods while in its actual or constructive possession before loading or after discharge over ship’s rail or if applicable, on the ship’s ramp, however caused."
At the discharge ports, parties purporting to act on behalf of the notify parties under the bills of lading presented the defendants’ agents with forged bills of lading which were endorsed either in blank or to the notify party. The defendants’ agents thereupon issued delivery orders in the belief that the bills of lading which had been presented were genuine and the goods were delivered to the fraudsters. The question for the Court was who should bear the loss in such circumstances.
The plaintiffs advanced their case on the proposition that the defendants had delivered the goods without production of the original bills of lading. The defendant countered this by asserting that the Carrier’s Responsibility clause in the bills of lading operated to exempt them from liability after the goods were discharged over the ship’s rail. The defendants also argued that, quite independently of the Carrier’s Responsibility clause, a shipowner who innocently delivers cargo against presentation of a fraudulent bill of lading intends to perform his obligations and should not lightly be found to be in breach of them.
The Court restated the proposition that a shipowner is both entitled and bound to deliver cargo against production of an original bill of lading and that he delivers cargo without such production at his peril. If an original bill of lading cannot be produced, the master cannot be obliged to deliver the goods unless the owners have already bound themselves in contract to do so. Failing this, the true owner of the goods must come to an accommodation with the owners to obtain delivery of the goods (usually by offering an indemnity) or make an application to the Courts.
The Court then considered whether a fraudulent bill of lading was as good as a genuine bill of lading for the purposes of delivery of the goods. The Court expressed the view that this is clearly not the case if the bill of lading is known to be fraudulent or if the owners are on notice of the possibility that it is fraudulent. In such circumstances, the owners could be neither entitled to nor forced to deliver the cargo against the fraudulent bill of lading. The Court then considered the situation which would arise if the owners for some reason refused to deliver the cargo against production of a bill of lading which was fraudulent in circumstances where they were unaware of the fraud. The conclusion drawn by the Court was that the owners could not be in a worse position than if they had been aware that the bill of lading was fraudulent or were on notice of the possibility that it was fraudulent. Based on this logic, the Court held that the only way in which owners could have a defence to a claim based on the innocent delivery of cargo against production of a fraudulent bill of lading was if there was a term implied into the bill of lading contract to this effect. In the judgment of the Court, it was neither reasonable nor necessary to imply such a term which would both favour the owners at the expense of the true owners of the goods and undermine the essential role of the bill of lading as the key to a floating warehouse.
The Court was comforted in reaching this conclusion by the fact that the owners control the form, signature and issue of the bills of lading and so are best placed to prevent delivery of cargo against production of fraudulent bills of lading, although the Court did acknowledge that it is common for owners to delegate these functions to their charterers. In addition, the Court took account of the fact that the owners were under an obligation to care for the cargo entrusted to them and to deliver it in accordance with the bill of lading contract. It was, therefore, better for the loss to fall on the innocent shipowner than on the innocent holder of a valid bill of lading who expects to receive the goods upon presentation of it.
In considering whether the owners were liable for conversion, the Court held that the provision of a delivery order to the party producing a fraudulent bill of lading and delivery of the cargo against this amounted to an intentional act which was inconsistent with the true owner’s rights. Whether or not this was done in ignorance of and without intending to challenge the true owner’s rights, this amounted to conversion in the judgment of the Court. As regards the defendants’ reliance upon the Carrier’s Responsibility clause, the Court held that it was not drafted in terms of a cesser of liability. On a natural reading of the clause, the Court found that it did not extend to include misdelivery of the goods by the defendants out of their possession whether in the absence of any bill of lading or the absence of an original bill of lading. Had this been intended by the parties, they could easily have provided for it. The Court, therefore, found in favour of the plaintiffs.
This case highlights an area of particular concern for owners because it is an indisputable fact of modern shipping that owners are forced to delegate authority to their charterers to issue and sign bills of lading. It was somewhat disingenuous of the Court, therefore, to place such reliance upon control over the form, signature and issue of bills of lading being vested in the owners. The truth of the matter would seem to be that the Court felt that owners make a value judgement when they delegate such authority to their charterers and so must live with this and that the injustice created by this did not outweigh the potential injustice to the true owners of the cargo.
This decision was upheld by the Court of Appeal.
¹ [1999] 1 Lloyd's Rep 837
