There have been several decisions in 2022 about carrier’s defences to misdelivery claims under bills of lading.
Carriers face misdelivery claims when they deliver cargo without production of original bills of lading, but then someone else claiming to be the ‘lawful holder’ of the bills complains the cargo should have been delivered to them instead. A common scenario is where a bank has financed the import of a cargo, but the finance has not been repaid. The bank then looks to the bills of lading it holds as a form of security. Unfortunately, the bank often finds the financed cargo has already been discharged from the ship (usually under a letter of indemnity) and cannot be traced. The bank finds it has no security for its claim against its defaulting customer, and brings a claim against the carrier for misdelivery under the bills of lading, arguing the carrier should not have discharged the cargo without the production of the original bills of lading. The carrier in turn looks to the letter of indemnity under which it agreed to discharge the cargo without the original bills.
Did the bank suffer any loss as a result of the misdelivery?
In April 2022 the English High Court found in UniCredit Bank v Euronav  EWHC 957 (which is pending in the Court of Appeal) that the carrier could rely on two complete defences. One defence was that the bank knew the cargoes it financed were being delivered to its customer’s buyers without bills of lading, and had implicitly approved that arrangement. The bank therefore suffered no recoverable loss, because the carrier performed the contract of carriage in the way the bank wanted it to. The evidence was that the bank’s relationship manager knew her customer’s cargoes were being delivered without bills of lading, which was risky, but relied on trade credit insurance to cover the risk of default. In order to succeed in a “no loss” defence, it seems a carrier must show the same chain of events would have happened in any event, i.e. that even if original bills had been available, the bank would have ordered delivery to the same person who in fact received it.
Did the bank even have the right to sue the carrier for misdelivery?
The Court in the UniCredit Bank v Euronav case found the carrier could rely on a second defence: that the bill of lading did not give the bank the right to sue the carrier for misdelivery. In the rather unique circumstances of the case, the Court found the bank’s bill of lading was not in fact a contract of carriage giving a right to sue, but a mere receipt. That was because the carrier and the previous holder of the bill of lading were party to a charterparty for the hire of the ship – so the contractual relationship between them was covered by the charterparty and not by the bill of lading. The bill of lading was a mere receipt for the cargo. The charterparty was then novated to another charterer, and the bill of lading was later passed to the bank. The Court found the bill of lading remained a receipt and not a contract, and therefore Unicredit Bank never obtained a right to sue the carrier under it. The reasoning behind this decision is unclear and is subject to an appeal, but financing banks should consider in each trade whether they have become party to the contract of carriage or whether they have merely been passed a receipt for goods.
This was also an issue for the Singapore High Court in The “STI Orchard” , SGHCR 6 on which Reed Smith has reported here. It is thought that in both English and Singapore law, it must have been intended at the time of the transfer of a bill of lading that rights to sue will also be transferred with it, otherwise the new holder will not inherit the right to sue. The Singapore Court thought the bank’s financing arrangements suggested it was not relying on the cargo or bills of lading as security, but was instead taking security over the proceeds of its customer’s sale of the cargo after delivery. Also, the bank did not ensure either that the bills were made out to its order or indorsed in blank. Instead, the bank allowed the bills of lading to be issued or indorsed to the receiver’s order. The court’s view is that these points indicated the bank may not have been transferred the right to sue under the bill of lading. This was a summary judgment decision, so the full trial is yet to take place, but the same reasoning was followed in Standard Chartered Bank v Maersk Tankers  SGHC 242.
Is it time barred?
Lastly, in September 2022 the English High Court issued its decision in Fimbank v KCH Shipping (on which Reed Smith reported here) , confirming that the 12 month time bar under the Hague-Visby Rules is likely to apply to most cases of misdelivery, unless the bill of lading document itself contains clear words to the contrary or indicating the Hague-Visby Rules cease to apply. We note that permission to appeal this decision has been granted.
The law on the defences available to a carrier continues to develop rapidly, and bill of lading holders cannot consider a misdelivery claim to be an ‘open goal’.