Hong Kong – Delivery under Straight Bills of Lading Clarified

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The first instance decision in Carewins Development (China) Ltd v Bright Fortune Ltd concerning whether delivery under a straight bill of lading required production of an original bill was reported in an earlier website article Hong Kong - Conflicting Decisions on Delivery under Straight Bills of Lading. This decision threw the issue into confusion in Hong Kong as it conflicted with an earlier decision of Mr Justice Waung in the “Brij[1]” in July 2000. The issue has now been addressed following appeal of the Carewins decision to the Hong Kong Court of Final Appeal. 

In reaching his decision that production of an original bill of lading was a condition precedent to delivery under a straight bill of lading Stone J relied on the Singaporean case of Voss v APL Co Pte Ltd[2] and obiter dicta comments of the House of Lords in the “Rafaela S”[3]. Stone J also went as far as to affirm the obiter comments of Lord Bingham and agree that, if necessary, he too would find presentation of an original bill of lading to be a condition precedent to delivery even where there was no express provision to that effect within the bill. 

The facts were set out in detail in the earlier article and shall not be repeated herein. In essence the case concerned a claim for misdelivery in respect of various containers of footwear products shipped from Hong Kong to Los Angeles, which upon arrival at Los Angeles were seized by US officials, as a result of which the receivers refused to pay for the cargo. 

The decision of Stone J was affirmed on appeal. The defendant carriers further appealed to the Hong Kong Final Court of Appeal both on the presentation issue and on the second question whether, if presentation was a necessary requirement for delivery carriers could nevertheless rely on a bill of lading clause purporting to exclude liability for misdelivery whether there was negligence on the part of the carrier or not. 

The leading judgment was handed down by Mr Justice Ribeiro PJ. In his judgment Justice Ribeiro, like Stone J, relied on the “Rafaela S”. Justice Ribeiro referred to the three main characteristics of a bill of lading identified by Lord Steyn in his judgment, those being as a receipt for the goods on board, as evidence of the contract of carriage, and, importantly, “as a document of title to the goods which enables the consignee to take delivery of the goods at their destination or to dispose of them by endorsement and delivery of the bill of lading”. The role of the bill of lading as a document of title was perceived as central to its use in International trade. Justice Ribeiro also quoted a passage from the judgment of Bowen LJ in Sanders Brothers v Maclean & Co[4] wherein the bill of lading was described as “the key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance be.” It was held that the bill of lading should allow the seller and buyer to deal in the documents as representing the goods which are the subject matter of sale; whereby a seller wants to be assured an overseas buyer will pay for goods before taking possession, i.e. by transferring the bill of lading on payment, and a buyer receives assurance that the goods have been shipped and that he will be entitled to possession of them. 

In presenting their appeal the carriers sought to argue that presentation was an empty formality when concerning a straight bill of lading and relied on the decision of Waung J in the “Brij” wherein it was stated that “…the essence of Straight Bills is that they are not negotiable and the contractual mandate is to deliver to named consignee without the production of the original document”  Justice Ribeiro dismissed this argument and was not persuaded that the characteristic of a bill of lading as a document of title should depend on whether it was negotiable. He considered instead that the shipper’s ability to withhold the bill of lading as the metaphorical or notional key to the warehouse was of high importance and recognised that, although the carrier may know in respect of a straight bill of lading to whom the goods should be delivered, it could not be assumed that they were in fact entitled to possession. In reaching this decision Justice Ribeiro cited the comments of Lord Bingham in the “Rafaela S”.  

Secondly he also found that the terms of the bill of lading itself indicated an intention for delivery only against presentation. In reaching this conclusion Justice Ribeiro used substantively the same reasoning and authorities as Stone J in the first instance Court. Essentially it was considered that the attestation clause in the bill indicated an intention for presentation to be a pre-requisite for delivery, although once again he considered that even in the absence of an attestation clause presentation would still be required in all but exceptional circumstances. To this end Justice Ribeiro considered the “Brij” to have been wrongly decided. 

We turn briefly to the issue of the exclusion of liability clause in the bill of lading. At first instance there was a dispute as to whether misdelivery took place before or after completion of discharge. If misdelivery had taken place before discharge Article III Rule 8 of the Hague-Visby Rules would deprive the carrier of the benefit of the exclusion clause. On appeal to the Final Court of Appeal it was agreed that misdelivery took place after discharge. 

The relevant clause in the bill of lading was clause 2(b) which stated: 

“…the Carrier shall be under no liability in any capacity whatsoever for loss or misdelivery of or damage to the Goods however caused whether or not through the negligence of the Carrier…” 

The carrier sought to argue that the clause was drafted in such wide terms that it unambiguously excluded any possible claim for misdelivery. The Court held that the effectiveness or otherwise of an exemption clause was purely a matter of its construction. The court referred to the approach summarised by Lord Wilberforce in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Lt[5]d wherein it was held that the effectiveness of a clause limiting liability was a question of “construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence, it must be most clearly and unambiguously expressed, and in such a contract as this, must be construed contra proferentum…The relevant words must be given, if possible, their natural, plain meaning.”  

The Court also quoted Lord Wilberforce from Suisse Atlantique[6]  wherein he held that “the contractual intention is to be ascertained…not just grammatically from words used, but by consideration of those words in relation to commercial purpose…”  Further, Lord Diplock in Photo Production Ltd v Securicor[7] was quoted in relation to his finding that there was a requirement for words to be clear and “fairly susceptible of one meaning only”  

It was further noted that in light of the fact that presentation was considered an essential purpose and characteristic of the bill of lading contract, such a clause would allow a carrier to act with impunity by consciously disregarding a primary contractual purpose. 

Following discussion, Justice Ribeiro held that clause 2(b) was susceptible to more than one meaning and could be given adequate content as an operational clause without nullifying the “cardinal obligation” of the presentation rule. It was held that misdelivery could cover a range of situations, many of which would not involve the conscious disregard of the presentation rule. The clause was also viewed in favour of shippers when considering the principle of contra proferendum. 

This case marks an important clarification in the law related to delivery of cargo under straight bills of lading and also provides an interesting and comprehensive discussion of issues relating to exclusion clauses in contracts of carriage.

[1] [2001] 1 Lloyd's Rep 431
[2] [2002] 2 Lloyd's Rep 707
[3] [2002] 2 Lloyd’s Rep 403; [2003] 2 Lloyd’s Rep 113; [2005] 1 Lloyd’s Rep 347
[4] (1883) 11 QBD 327, 341
[5] [1983] 1 WLR 964
[6] Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] AC 361
[7] [1980] AC 827