China - Delivery Under a Straight Bill of Lading and Choice of Law

April 2006

In a recent decision the Chinese Higher Court of Guangdong Province* held that disputes concerning the delivery of cargo without production of a bill of lading should be defined as contractual disputes. The case in question dealt specifically with delivery of cargo carried under a straight bill of lading, namely a bill of lading which provides for delivery to a named consignee, without the possibility of transferring the right to claim delivery by further endorsement of the bill. The Court confirmed the legal principle of applying the choice of law under the bill of lading regardless of whether it conflicted with Chinese law.

During the Thirteenth National Seminar on Maritime Adjudication held in September 2004, the judges of China's maritime courts and appeal courts reached a common understanding that the carrier is obliged to deliver cargo under a straight bill of lading against surrender of an original of the same.

However, such a common understanding is limited to cases where Chinese law is the applicable law. In the case decided by the Chinese Higher Court of Guangdong Province, in which Wang Jing & Co law firm represented the defendant carrier, the court applied US law to hold that the carrier can deliver the cargo without production of the original straight bill of lading.

In this case, the carrier issued to the Chinese shipper a straight bill of lading, where the applicable law clause on the back of the bill of lading stipulated that it was subject to the United States Carriage of Goods by Sea Act 1936 ("US COGSA"). After the cargo arrived at the destination port in Canada, it was delivered to the consignee without production of the original bill of lading. When the shipper did not receive payment from the consignee, it brought an action in tort before the Guangzhou Maritime Court against the carrier, requesting an indemnity from the latter for its losses. Both the Guangzhou Maritime Court in first instance and on appeal the Higher People's Court of Guangdong Province rejected this request and unanimously confirmed the following legal principles:

(a) A dispute over delivery of cargo without production of the original bill of lading shall be defined as a contractual dispute. The carrier's responsibilities and obligations in such disputes shall be determined by the law applicable to the particular contract. Accordingly the court rejected the shipper's attempt to file the suit in tort rather than in contract so as to avoid the applicable law clause in the bill of lading.

(b) As to the effectiveness of the U.S. applicable law clause in the bill of lading in question, the Court found that both parties had voluntarily entered into the bill of lading and thus the choice of U.S. law was deemed to have been their genuine intention and express choice. In addition, such an applicable law clause does not violate the public interest or the social order of the People's Republic of China. Therefore, although the law of the United States did not have a close connection with the case, the applicable law clause was nevertheless valid and effective.

(c) As to proof of US law, the US COGSA and the Federal Bills of Lading Act have both been applied in several binding civil judgments rendered by the Chinese courts, therefore the provision by the carrier of texts of the laws and relevant applicable civil judgments would be sufficient evidence of US law, without the need to adduce further or additional evidence

Applying US COGSA and the Federal Bills of Lading Act to this case, the Chinese Court held that the carrier will not be in breach of its legal obligations if it delivers cargo to the named consignee under a straight bill of lading without the production of an original bill.

The decision in this case highlights the increasing willingness of the Chinese Courts** to recognise the applicability of contractually agreed foreign law clauses, although there is a reluctance to recognise such clauses if they do not appear to have been clearly and expressly agreed by the parties to the contract. Nor will such clauses be recognised where they are considered to be contrary to the public interest in China.

The decision of the Higher People's Court of Guangdong Province also raises questions as to how similar disputes under straight bills of lading but providing for English Law may be interpreted by the Chinese Courts The Chinese Court had no difficulty in applying US law to this dispute which, unlike English law is clear on the issue of delivery under straight bills of lading.

The decision of the House of Lords in the "Rafaela S" was discussed in a Steamship Mutual website article written in April 2005 - click here to view. One of the issues that was considered in the "Rafaela S" was whether, notwithstanding its non-negotiable status, a straight bill of lading could be considered to be "a bill of lading or similar document of title" for the purposes of the Hague-Visby Rules as enacted by the UK Carriage of Goods by Sea Act 1971 (COGSA '71). Rix LJ in the Court of Appeal view was that production of a straight bill of lading was necessary for the delivery of cargo not only where the express terms of the bill of lading provided for its production, but as a matter of law and principle. In the House of Lords Lord Bingham agreed. However, because the bill of lading in the "Rafaela S" contained a clause which expressly required the production of the bill of lading to obtain delivery the views of both Lord Bingham and Rix LJ were obiter and technically are not binding. The primary reasoning of both Lord Bingham and Rix LJ was the role of the straight bill of lading as a document of title and need to ensure that a consignee or buyer who had not paid for the cargo would not be able to obtain delivery of that cargo.

These views provide a strong indication of how the English Courts may decide the issue of delivery without production of a straight bill of lading in the future. However, The House of Lords did not need to deal with the relationship between a straight bill of lading as a document of title for the purposes of COGSA '71 and the rights of a bill of lading holder in accordance with the English Carriage of Goods by Sea Act 1992 (COGSA 1992). The bill of lading had been issued prior COGSA 1992 coming into force. Under COGSA 1992 a straight bill of lading is not a bill of lading for the purpose of that Act. Instead, a straight bill of lading is treated as equivalent to a sea waybill, the presentation of which is not required for delivery. Therefore it remains to be seen how the English Courts would approach a dispute to which COGSA 1992 applies where a carrier has issued a straight bill of lading and is faced with a receiver that can identify itself as the party named on the bill but does not in fact possess the original bill of lading.

Given this uncertainty, it is not clear how the Chinese courts, or indeed those of any other jurisdiction, would approach the question of delivery pursuant to a straight bill of lading if required to apply English law to the issue. It would therefore be prudent for carriers to err on the side of caution and to insist upon delivery of cargo only against production of an original (negotiable or straight) bill of lading, unless they have received clear legal advice to the a contrary. Members faced with this dilemma are advised to contact the Club for advice.

Summary

During the Thirteenth National Seminar on Maritime Adjudication held in September 2004, the judges of China's maritime courts and appeal courts reached a common understanding that the carrier is obliged to deliver cargo under a straight bill of lading against surrender of the original bill of lading. However, such a common understanding is limited to cases where Chinese law is the applicable law.

The Chinese Higher Court of Guangdong Province has recently confirmed that disputes concerning the delivery of cargo without production of a bill of lading are contractual disputes. This raises the question what view the Chinese courts will take when the applicable law is not Chinese, and particularly if the applicable law differs with Chinese law or is unclear on the issue. Wang Jing & Co law firm acted in a recent case in which the choice of law under the bill of lading in fact conflicted with Chinese law. This case is discussed in an article on the Steamship Mutual website in a joint article by Sue Watkins and Wang Jing & Co law firm, and the decision in that case is contrasted with the current approach of English law to the question of delivery of cargo without production of a straight bill of lading.

*Guangzhou Zhaoying Hardware Co. Ltd v Beijing Kangjiekong Cargo Agent C. Ltd. et al (2005) YGFMSZZ No.184

** But see Steamship Mutual website report of Shanghai Maritime Court decision in the PICC case.