Anthony Diamond - Discussion paper

“key to the warehouse”. The concept of the holder of the bill having the ius disponendi (right of disposition) is recognised by Section 19 of the Sale of Goods Act 1979.

With the advent of sea waybills and other non-negotiable transport documents, together with e_commerce, the topic of right of control in carriage by sea has become topical.

The CMI considered the matter in 1990 when it produced the CMI Uniform Rules for Sea Waybills and the CMI Rules for Electronic Bills of Lading.

The CMI Rules for Sea Waybills introduce a new feature not found in the Warsaw, CMR or COTIF Conventions. They permit the shipper to transfer the right of control to the consignee provided that he does so before receipt of the goods by the carrier and provided that the exercise of the option is noted on the sea waybill or similar document. Rule 6 provides:

“6. Right of Control

(i) Unless the shipper has exercised his option under sub-rule (ii) below, he shall be the only party entitled to give the carrier instructions in relation to the contract of carriage. Unless prohibited by the applicable law, he shall be entitled to change the name of the consignee at any time up to the consignee claiming delivery of the goods after their arrival at destination, provided he gives the carrier reasonable notice in writing, or by some other means acceptable to the carrier, thereby undertaking to indemnify the carrier against any additional expense caused thereby.

(ii) The shipper shall have the option, to be exercised not later than the receipt of the goods by the carrier, to transfer the right of control to the consignee. The exercise of this option must be noted on the sea waybill or similar document, if any. Where the option has been exercised the consignee shall have such rights as are referred to in sub-rule (i) above and the shipper shall cease to have such rights.

Clearly this Rule has its limitations. It can be used to ensure that the named consignee has the security of knowing that the goods will not be diverted in the course of transit. This could be useful where the shipper is selling on credit terms or for one reason or another will not need to enforce any rights of security over the goods. But the system cannot be used to transfer the right of control after shipment as and when the consignee pays for the goods. The view taken in 1990 was, no doubt, that if a right of control might be transferred merely by a notice given to the carrier, this could lead to uncertainty on the part of the carrier as to whether the notice had been given by the proper party or was a valid notice and accordingly (particularly if there were conflicting notices or claims) he might not know to whom delivery ought to be made.

The Carriage of Goods by Sea Act 1992, and the Law Commission Report that preceded it, recognised that where a sea waybill nominates a particular consignee, the shipper may instruct the carrier to deliver to a different consignee. If he does so, the original consignee ceases to be entitled to sue under the Act and, instead, the new consignee will have rights of suit; Section 2(5)(b).

The 1992 Act, however, did not provide any mechanism whereby the shipper could irrevocably transfer his right of disposition to the consignee. Various contractual attempts have been made to provide that the right of control can be taken away from the shipper and given to the consignee. Clauses referred to as “NODISP” or “CONTROL” clauses are known but it is doubtful to what extent they are effective.

The main questions we ought to consider are the following:

(1) In carriage by sea should the shipper have the right to demand delivery of the goods before their arrival at the place of destination provided that this is practicable, does not interfere with the normal operations of the carrier or result in damages to the carrier? See Clauses 10.1(a)(i) and 10.3(a) and (b).

(2) Should there be a “right” to give other instructions which qualify as a variation of the contract of carriage given that this will be “subject to agreement of the parties to the contract of carriage”? (See Clauses 10.1(a)(iii) and 10.3(a)).

(3) Is there any point in dealing with the situation where under the terms and conditions of the contract of carriage the shipper has the right to give or modify instructions? Should the carrier be able to refuse compliance if the execution will result in additional expense etc? (See Clauses 10.1(a)(iv) and 10.3(a) and (b)).

(4) Should the shipper have the entitlement to transfer the right of control to another person merely by giving notice to the Carrier? (See Clause 10.1(b)).

(5) Should the carrier be concerned with agreements between the shipper and consignee as to which of them has the right of control? (See Clause 10.2(a)(i).

(6) Should the right of control pass automatically to the consignee when he becomes entitled to demand delivery or should both shipper and consignee have the right as from that time? (See Clause 10.2(a)(ii)).

(7) Should there be any circumstances when both the shipper and the consignee hold the right of control (See Clause 10.2(a)(iii) and (iv)).

(8) Is there any need for provisions regarding right of control where bills of lading have been issued?

(9) If so, should one distinguish between the case where the goods have reached the contractual destination (where production of one original bill is required by existing law) from other situations where the carrier may demand production of all original bills? (See Clause 10.2(b)).

(10) How should rights of control be dealt with in the context of electronic bills of lading (e.g. Bolero and the CMI Rules) and does the draft cater for them?

(11) How should the seller’s right of stoppage in transitu be dealt with?

(12) Should the provision be mandatory for contracting States or for parties to the contract of carriage?

3. Transfer of Rights

Chapter 11 of the draft outline instrument refers to “transfer of rights” but without making it clear whether the rights in question are:

i. proprietary rights in the goods (“proprietary rights”);

ii. the right to claim possession of the goods from the carrier (“possessory rights”); or

iii. the right to sue the carrier for loss or damage (“rights of suit”).

Presumably rights of suit are not dealt with in Chapter 11 as they are the subject of Chapter 12.

Presumably, moreover, we can ignore those parts of Chapter 11 which deal with proprietary rights as the Singapore Conference decided that questions relating to the transfer of the property in the goods fall outside the scope of the proposed Convention.

This leaves possessory rights. If these are to be dealt with, it will be necessary to consider separately who is entitled to possession of the goods under (a) a transferable bill of lading; (b) a “straight bill of lading” and (c) a non-transferable document (such as a sea waybill) and how in each case that right can be transferred.

The subject is complex and it can affect the rights of third parties to the contract of carriage such as banks and other pledgees.

There is moreover an indirect link between possessory and proprietary rights so that if the former subject is outside the scope of the Convention, it may perhaps be better to omit the subject of possessory rights as well.

(a) Transferable bills of lading

In English law it is very clear that it is in the nature of a bill of lading contract that the carrier is both entitled and bound to deliver the goods against production of an original bill of lading, provided that he has no notice of any other claim or better title. Delivery without production of a bill of lading constitutes a breach of contract in the absence of a special agreement. I do not need to refer to the classic authorities on this topic. Recent authorities include The Sormovskiy 3068 (1994) 2 Lloyd’s Rep 266; The Houda (1994) 2 Lloyd’s Rep 541; and Motis Exports (1999) 1 Lloyd’s Rep 837; [2000] 1 Lloyd’s Rep 211.

Similarly, in an international context, Article 1 para 7 of the Hamburg Rules defines “bill of lading” as follows:

“a document which evidences a contract of carriage by sea and the taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the document. A provision in the document that the goods are to be delivered to the order of a named person, or to order, constitutes such an undertaking.”

Against this background it is surprising to find that Clause 17.1 of the draft instrument provides that if the carrier issues a negotiable transport document the carrier holds the goods in its custody for the holder. This is an over-simplification. The carrier is not bound to deliver to “the holder” unless he presents an original bill. This is of the essence of a bill of lading contract. The transfer of the document transfers the right to demand the cargo from the ship at discharge upon presentation of the document.

It is not clear from the draft how the carrier is to satisfy himself that the person demanding delivery is entitled to the goods unless by requiring the production of an original bill.

One can discuss whether there should be any exceptions to this principle, e.g. if it be proved “both that the person seeking delivery of the goods is entitled to possession and what has become of the bill of lading”; The Sormovskiy p.272.

One can also discuss whether there should be any protection to a carrier who delivers against an indemnity (i.e. without production of an original bill) and who is subsequently faced with a claim by someone who has only become the holder of the bill after such delivery has taken place. This topic is dealt with (although in somewhat confusing language) in Clause 11.4.

It seems to me however that, as a matter of principle, nothing should be included in the draft which tends to diminish the security value of bills of lading not only to buyers and sellers but also to banks and other pledgees. Accordingly if the subject is to be included in the draft at all the “key to the warehouse” principle will have to be very carefully formulated.

(b) “Straight” bills of lading

The subject again is difficult. It is discussed in the Law Commission Report which preceded the 1992 Act, Benjamin (5th ed) para 18–014 and Gaskell, Asariotis and Baatz para 14.23.

According to Benjamin a straight bill of lading is one “which makes the goods deliverable to a named consignee and either contains no words importing transferability or contains words negativing transferability.”

Such a bill cannot be transferred by the consignee to any other person. Nor can the shipper oblige the carrier to deliver the goods to a person other than the consignee merely by indorsing and delivering the bill to that person.

It is I believe more controversial whether the shipper can direct the carrier to deliver the goods to a person other than the named consignee by giving directions to that effect to the carrier. Normally a “straight” bill will contain an express term which provides that the bill is to be surrendered before the goods will be delivered. It is also possible, as the Law Commission assumed (para 2.50) that, even in the absence of an express term, a straight bill of lading does have to be presented. In either case it is arguable that it is permissible for the shipper to strike out the name of the first consignee, to insert the name of the new consignee, and to deliver the bill to the new consignee to enable him to take delivery.

In the United States the position of “straight” bills of lading is governed by statute. The 1994 recodification of the Pomerene Act changed the term “straight bill of lading” to “non-negotiable bill of lading”: see 49 US Code sect. 80103(b). I believe the position in the US to be that such a bill does not have to be presented to the carrier in exchange for delivery (at least, unless the bill so provides) and that it cannot be negotiated free from existing equities. (NB: the latter topic does not concern us since under English law no bills are negotiable free from existing equities.)

The main points have been mentioned under “Right of Control”. It is perhaps odd that Section 11 of the draft outline instrument deals only with transfer of rights where a negotiable transport document has been issued. For non-negotiable transport documents one has to go to Section 10.

It seems to me that the main questions we need to consider in connection with “transfer of rights” are the following:

(1) Should it be made clear when dealing with “transfer of rights” precisely what rights are being referred to?

(2) If so, should the definition refer to the right to obtain delivery of the goods from the carrier at destination (subject perhaps to the right of any person having a better title to the goods than the holder?)

(3) Should the instrument deal specifically with transferable bills of lading rather than “negotiable transport document”?

(4) If the word “negotiable” is to be used, is it necessary to define what is meant by negotiability?

(5) In any event should there be a definition of (negotiable) “bill of lading” along the lines of the Hamburg Rules which refer to an undertaking by the carrier “to deliver against surrender of the document”.

(6) Should the instrument contain provisions relating to right of the Carrier not to deliver the goods to the holder save on production of an original bill? If not, should it contain provisions as to how the Carrier is to ascertain whether or not the person demanding delivery is the holder of the bill?

(7) Should the instrument define the protection to be given to a Carrier who delivers against an original bill without notice of any better title, against a claim made by the true owner of the goods?

(8) Should the instrument make it generally (i.e. subject to possible exceptions) a breach of contract for the carrier to deliver the goods without production of an original bill?

(9) If so, should there be an exception where the person demanding delivery can demonstrate that he is entitled to possession of the goods and can show what has become of the bill of lading, e.g. that it has been lost or destroyed?

(10) Should there be an exception where the goods have been delivered without production of an original bill and the bill is subsequently indorsed to a new party; see Clause 11.4 of the draft instrument?

(11) If the instrument is not to contain provisions relating to delivery against surrender of an original bill (see questions 5 to 10), are these matters to be dealt with by express clauses of the bill or by national law or both?

(12) Should there be provisions relating to “straight” bills of lading and, if so, what should they provide?

(13) Should there be provisions relating to received for shipment bills, through bills or multimodal bills to ensure that they are dealt along similar lines to shipped bills?

(14) Ought the subject of “transfer of rights” be dealt with at all in the draft instrument, save in the context of “right of control”?

(15) If it is to be dealt with, should the provisions be mandatory for contracting states or non-mandatory?

4. Obligations of Consignees and Indorsees

The draft instrument does not deal with this subject save in Clause 11.5 which provides

“The intermediate holder, which does not claim any right under the contract of carriage, does not assume any liability under the contract of carriage solely by reason of becoming a holder.”

This principle is non-controversial and is in line with English law; see Borealis v Stargas (the “Berge Sisar”) decision of the House of Lords on 22nd March 2001; [2001] 2 WLR 1118.

What is not clear is whether (a) it is intended that a consignee or indorsee who takes or demands delivery of the goods should have no liability in personam under the contract of carriage or (b) it is left to national law to determine the extent of his liability if any.

The draft instrument (Clause 8.6(a)) may give the carrier a possessory lien (right of retention) for freight, demurrage, damages for detention, “reimbursable costs”, “any damages due to the carrier under the contract of carriage” and general average contributions. It is to be noted however (a) that the lien only applies “if and to the extent that the consignee is liable for the payments” and (b) while there are some provisions telling us when the consignee is not to be liable (e.g. Clause 8.5(a)), there is no provision telling us when he is to be liable.

On the whole my view is that it would be held that (subject to the provisions stating when the indorsee or consignee is not to be liable) the draft instrument is to be construed as meaning that the extent of the indorsee’s or consignee’s liability is left to national law to determine.

I have felt that it is unsatisfactory that the draft is so unclear, and I have raised the subject of consignee’s liabilities at almost every meeting which I have attended. I have been unable so far to obtain any support even for the proposition that a consignee who takes delivery of the goods should be liable for the freight in a “freight collect” situation. I do not quite understand why this should be so. It may be that civil law countries are unhappy at the prospect of imposing burdens on third parties to contracts or that they are not used to making consignees liable in personam. It may be that it is thought sufficient to confer on the carrier a lien for freight, demurrage etc, and it is supposed that Clause 8.6 would confer such a lien.

The main questions for consideration are as follows:

1. Should it be made clear that, in general, the question whether indorsees and consignees are to be liable under the contract of carriage and the extent of that liability (if any) is something to be determined by national law and falls outside the Convention?

2. Alternatively, should the Convention provide that, where there has been a transfer of possession of the relevant goods to the indorsee or transferee, the latter assumes any liability imposed by the contract of carriage?

3. Alternatively in the situation contemplated in (2), should there be exceptions to the liability of the indorsee or transferee e.g. liabilities which can be said to be peculiarly shipper’s liabilities such as the liability for shipping a dangerous cargo?

4. Should the Convention deal with the other matters covered by our 1992 Act, such as whether the shipper continues to have rights and liabilities under the contract of carriage in cases where delivery of the goods is made to an indorsee or consignee?

These are the main points that have occurred to me. Perhaps they are enough to be going on with.

Anthony Diamond

1st May 2001

BRITISH MARITIME LAW ASSOCIATION