Financial Consequences of Failure to Collect Cargo

August 2015

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Summary

In the recent case of Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd (‘Bao Yue’) [2015] EWHC 2288 (Comm), the defendant shipowner successfully defended a claim that it had committed the tort of conversion by storing cargo that had not been collected on discharge on terms that created a lien for the storage costs. This case provides helpful guidance on what a shipowner’s rights are when the Bill of Lading is not presented on discharge.

Facts

A cargo of iron ore was carried from Bandar Abbas, Iran to Tianjin, China by the defendant shipowner in February/March 2012.  The Bill of Lading issued was negotiable; it had no named consignee and was “to order”. The claimant was the named shipper. As a result of a dispute between shipper and the buyer of the cargo, a Bill of Lading was not available to be presented at the discharge port for delivery of the cargo.

The shipowner discharged the cargo and made arrangements for it to be stored in a bonded warehouse in Tianjin. The terms of this storage contract provided that the warehouse operator was entitled to refuse to release the cargo and to liquidate or otherwise dispose of such goods and to offset any proceeds against any overdue storage charges.

Three and a half years later the cargo was still in storage and cargo interests had taken no steps to collect it. As a result of the lengthy period of storage, the storage charges had accrued to an amount that exceeded the value of the cargo.

The warehouse owner refused to release the cargo until the accrued storage charges had been paid.

The Dispute

The shipper did not dispute the fact that the shipowner had been entitled to discharge the cargo into storage. However, it brought a claim in the tort of conversion.  This claim was made on the following basis:

  • The shipowner allowed a lien over the cargo for storage charges to be created in favour of the warehouse owner without express or implied authority.
  • The shipowner’s agent had denied the Bill of Lading holder access to the cargo by various alleged statements it had made.

In order to succeed in such a claim, the shipper was required to prove that the shipowner had deliberately acted in a manner that was inconsistent with the Bill of Lading holder’s ownership rights of the cargo without consent.

The Decision

In principle, creating a lien without the cargo owner’s authority may amount to conversion. However, in this case the Bill of Lading incorporated a term permitting the discharge and storage of the cargo. Therefore, the shipowner had express authority to discharge the cargo and was entitled to make arrangements for storage in a warehouse. The costs of this storage could be reclaimed from cargo interests. The court went on to say that it was not unreasonable for this to be done on terms conferring a lien over the goods for storage charges; this was the obvious commercial reality.

It was also held that the Bill of Lading holder had never been denied access to his goods. It had always been open to cargo interests to present the Bill of Lading and pay the accrued charges in order to obtain delivery of the cargo.

A further argument was made by the shipper that the shipowner had failed to mitigate its loss by selling the cargo. However, the court found no failure by the shipowner, again it was noted that it was open to the shipper to present the Bill of Lading for delivery but instead it had chosen to leave the cargo in storage. Further, the cargo could not have been sold as the shipowner did not have the Bill of Lading so could not have completed the customs formalities to sell the cargo.

The shipowner was successful in obtaining an order that he was entitled to delivery of the original Bill of Lading to enable him to sell the cargo and pay the storage charges.

Comment

This case provides some guidance on the steps that a shipowner can take when cargo interests fail to collect their cargo on discharge. The Bill of Lading terms should always be checked to see what the shipowner is entitled to do and whether there are any restrictions. It is recommended that cargo interests are advised of the steps that are being taken in order to demonstrate that steps are not being taken on a unilateral basis. If Members have any questions or concerns about a failure to collect cargo, they should contact the Managers.

Article by Heloise Clifford, Syndicate Associate