Electronic Release of Cargo

October 2015

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A recent decision in the High Court case of Glencore International AG v MSC Mediterranean Shipping Co SA and Another, has considered issues relating to carriers’ responsibility for loss of containers. In particular, the case discussed whether delivery of cargo under an Electronic Release System (ERS) complied with the Carrier’s obligation to deliver the cargo under a bill of lading (B/L) and if this was a breach of contract.

Background of the case

Claimants, Glencore, contracted with the defendant carrier, MSC, to ship three containers of cobalt briquettes from Fremantle, Australia to Antwerp, Belgium. The cargo had been shipped under a negotiable B/L issued by MSC, which named Glencore as the Shipper and Steinweg (Glencore’s local agents) as “Notify Parties” with the consignee box completed as “To order”.

The negotiable B/L contained the following express clause:

“If this is a negotiable (To order/of) Bill of Lading, one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier…in exchange for the Goods or a Delivery Order”.

The cargo was handled under an ERS implemented for use on containerised cargo on its arrival into the MSC Terminal at Antwerp. Under the ERS, carriers provided computer generated import PIN codes in exchange for the original B/L which the holders of the B/L presented to the terminal to take delivery of cargo. This ERS was not mandatory at Antwerp and was an alternative method adopted by MSC. Steinweg were entrusted with taking delivery of the cargo for Glencore and were familiar with the operation of the ERS as Glencore had previously shipped cargo to Antwerp successfully with MSC as carrier.

On this occasion, although MSC had issued Steinweg with an import PIN code for each of the containers, Steinweg’s hauliers were informed that two of the three containers had already been collected. It is unclear exactly what happened to the two missing containers and the cargo within.

Glencore claimed damages from MSC for breach of contract with respect to the two missing containers submitting that only one of the containers had been delivered.

The parties arguments

Glencore argued that they did not know that MSC used the ERS and that MSC should have delivered the cargo only on presentation of the B/L or a delivery order given in exchange for it as per the express clause contained in the B/L. MSC contended that they had (i) handled the cargo in accordance with the express terms of the B/L as the import PIN codes constituted a “Delivery Order” within the meaning of the B/L, and (ii) that an implied term permitted the use of the ERS to give business efficacy to the B/L. MSC further contended that they had (iii) acted in accordance with an agreement varying the B/L’s original terms.

Decision of the High Court

After consideration of MSC’s arguments, Mr Justice Andrew Smith held that Glencore had established its claim for breach of contract. Each of MSC’s arguments were examined in reaching this conclusion:

i.    Did the import PIN code constitute a “delivery order” within the meaning of the B/L?

In analysing this question, Mr Justice Andrew Smith noted that the term “delivery order” is used to describe documents of different kinds and as such should be interpreted in its context within the B/L. In this respect, he inferred that the parties must be taken to be referring to a “ships delivery order”, a commonly used expression defined in s.1(4) of the 1992 Carriage of Goods by Sea Act. An essential feature of such a delivery order is the carrier’s undertaking to deliver the goods to the person identified to take delivery under the document.

Mr Justice Andrew Smith held that the import PIN codes were not “Delivery Orders” as required under the B/L. He considered it improbable that the holder of a B/L would surrender its rights against a carrier without receiving either the goods themselves or the benefit of a substitute undertaking from the carrier. He decided that the import PIN codes themselves could not be held as providing any undertaking to the holder of the B/L.

ii.   Did an implied term permit the use of ERS to give business efficacy to the contract?

MSC argued that the previous course of dealing effectively permitted the use of the ERS as an implied term of the B/L, to effectively say that, “upon surrender of the bill of lading by the lawful holder, a carrier or its agent may provide an import pin code…” as well as to give business efficacy to the B/L.

Mr Justice Andrew Smith concluded that such an implied term was contradictory to the express terms in the B/L which stated the goods or a delivery order were to be provided in exchange for the B/L. He referred to Lord Hoffman’s comments in Johnson v Unisys Ltd [2001] UKHL 13 at para 35, “…any terms which the courts imply into a contract must be consistent with the express terms. Implied terms may supplement the express terms but cannot contradict them”. As the parties had specifically relaxed the carrier’s prima facie obligation to deliver against an original B/L by allowing the carrier to deliver the cargo against a delivery order, it was difficult to conclude that the parties intended to go further by allowing delivery against an import PIN code.

Furthermore, the evidence showed that the ERS was not exclusively used at Antwerp and it was not mandatory. Therefore, it was difficult to conclude that business requirements dictated the use of the ERS.

Mr Justice Andrew Smith commented further that to allow the implication of such a term would imply that by providing an import PIN code, MSC did indeed fulfil their obligations in delivering the cargo and discharging their liabilities. This could not be correct as receipt of an import PIN code did not constitute delivery but only a “right of delivery”.

iii.  Did MSC act in accordance with an agreement varying the B/L’s original terms?

MSC submitted that the express term in the B/L was varied by Steinweg’s agreement in correspondence in January 2011.

Mr Justice Andrew Smith accepted that Glencore’s local agents, Steinweg, were left to liaise with the carrier to handle the cargo following discharge subject to Glencore’s further instructions. Glencore were not involved or concerned with how Steinweg conducted these operations.

Having considered this, Mr Justice Andrew Smith was not satisfied on the evidence that Glencore gave Steinweg actual authority to enter into any agreements and consequently accept any variation of the original terms on Glencore’s behalf or that Glencore held Steinweg out as having such authority to do so. Notwithstanding the above, it was also noted that the correspondence referred to pre-dated the issuance of the B/L which the claim was brought under.

Comment

This case reinforces the fundamental obligation of a carrier to deliver goods in accordance with the terms of the contract of carriage unless it can clearly be shown that there is a valid agreement in place to the contrary. To fulfil its obligations, the carrier must either deliver the cargo to the holder of the B/L or provide a valid delivery order containing an undertaking as to delivery.

This case is specifically noteworthy as MSC as a carrier did not seek to do anything out of the ordinary and had previously used the ERS with cargo shipped by Glencore. There were obvious commercial advantages to adopting the ERS, which although not mandatory was considered more efficient than the traditional process.

The issues presented by this case are unusual and largely dependent on the facts of the scenario. However, this case demonstrates both the commercial and legal risks presented to a carrier when such systems are used and cargo is not delivered strictly in accordance with the terms of a contract of carriage.

Given the decision in this case, if carriers wish to use alternative delivery systems they should consider obtaining legal advice on their obligations and incorporating clear and express clauses in their B/L to reflect this.

Article by Avnish Jani, Syndicate Executive