When is a Bill of Lading Not a Bill of Lading?
Introduction
When is a bill of lading not a bill of lading? This is the key question discussed in a Singapore High Court case The “Star Quest” and other [2016] SGHC 100, another case arising from the OW Bunker saga. In that case, the Singapore High Court granted the shipowners (the “Respondents”) unconditional leave to defend a misdelivery claim in contract, bailment and tort of conversion on the ground that it had a triable issue that the bills of lading in the current case did not operate as either contractual documents or documents of title and thus the cargoes were not required to only be delivered against production of the bills of lading.
Facts
This case concerns an approximate USD7 million claim against six shipowners (the “Respondents”) from a bunker supplier (the “Appellant”). The Appellant sold several parcels of marine fuel oil (the “Bunkers”) to OW Bunker A/S and its subsidiaries (the “Buyers”) which in turn involved in insolvency proceedings, and the Buyers did not pay the Appellant for the Bunkers. For the purpose of recovering its loss, the Appellant took the current action against the Respondents who played a role as the carrier of the Bunkers. The Appellant’s bunkers were shipped on board the Respondents’ vessels (the “Vessels”) for which various bills of lading (the “Bills of Lading”) were issued naming the Appellant as the shipper. The Bunkers were loaded not for the Vessels’ own use but as cargoes for onward delivery to other vessels for their own consumption. The onward deliveries were without the production of the Bills of Lading. The Appellant retained possession of the original Bills of Lading and demanded delivery of the Bunkers to its order. Normally, a carrier who delivers cargoes without production of the original bill of lading does so at its own risk and is liable for any consequent losses suffered by the holder of the bill of lading.
The Appellant’s Case
The Appellant claimed that the Bills of Lading should give them full force and effect as documents of title, and contractual documents. They contained or evidenced the contracts of carriage formed between itself as the shipper and the Respondents as carriers. Accordingly, the deliveries of the Bunkers by the Respondents without production of the Bills of Lading constituted breaches of contract, breaches of bailment and conversion. Even if there were no concluded contracts of carriage, the Respondents were nevertheless liable for breaches of bailment and/or conversion as the right to immediate possession of the Bunkers remained vested at all material times with the Appellant. The Appellant applied for summary judgment which must show that it had a prima facie case and this was not disputed given that the parties did not dispute the above facts. The Burden was thus on the Respondents to show that there was an issue or question in dispute which ought to be tried.
The Respondents’ Defence
The Respondents raised five discrete defences to oppose the summary judgment application, each of which, if found to be reasonably arguable, would justify an order for unconditional leave to defend:
(a) the Bills of Lading operated merely as acknowledgements of the receipt of the Bunkers. They had no contractual force as there were no carriage contracts formed between the Appellant and the Respondents;
(b) the Appellant’s claims in bailment and conversion should be rejected as both title to and possession of the Bunkers had passed to the Buyers upon loading under the terms of the underlying sale contracts;
(c) in the Singapore and Malaysia bunker industry, there exists a custom which permits Bunkers to be delivered to vessels without production of any bill of lading;
(d) in respect of some other court actions of the Appellant, the Appellant was estopped from denying that the Respondents were permitted to deliver the Bunkers without production of the bills of lading by reason of previous course of dealings; and
(e) in respect of some other court actions, the Respondents are not liable because the Bills of Lading were signed not by the master, but by the chief officer or the cargo officer of the relevant vessel without authority.
In relation to point (a) above, the Court recognised that the bill of lading serves three functions: (i) a receipt by the carrier acknowledging the shipment of the goods on a particular vessel for carriage to a particular destination; (ii) a memorandum of the terms of the contract of carriage; and (iii) a document of title to the goods. The Respondents argued that the Bills of Lading were merely acknowledgements of the receipt of the Bunkers, but not contractual documents or documents of title. The Court agreed that there was no reference to destination of discharge in the Bills of Lading. The contemplation of multiple deliveries under the Bills of Lading gave principal difficulties in construing the Bills of Lading as documents in title as per the notation “one of which is accomplished, the others to stand void”, given that it would render the other two sets of the Bills of Lading spent once one set was presented for delivery of a sub-parcel. Multiple deliveries also made it unworkable to expect delivery of each sub-parcel to be accomplished only against the production of the Bills of Lading.
The court also considered whether the underlying sale contracts and commercial context should be used to construe the terms of the Bills of Lading and found that a credit period of 30 days is the standard practice in the local bunker industry and this term would form part of the factual matrix in which the Bills of Lading should be construed: (a) the availability of the credit period indicates that a requirement of delivery only against the Bills of Lading would have made no commercial sense; (b) a requirement for delivery only against the Bills of Lading would have been impracticable given that the cargoes were bunkers bound for “ocean going vessels”; and (c) the credit period supported the Respondents arguement that the Bunkers were sold by the Appellant on the creditworthiness of the Buyers. Also, the lack of any reference to bills of lading in the underlying sale contracts was the other essential features of the contracts between the Appellant and the Buyers which was also in line with the local bunker industry where no bills of lading were used.
Based on the above, the Court found that the Respondents would have an arguable defence that the Bills of Lading were not intended to operate as either contractual documents or documents in title.
For the defence (b), the Court agreed with the Respondents that possessory interests had arguably passed to the Buyers upon loading, after examining the terms of the underlying sale contracts, thus they were also entitled to defend the Appellant’s claims for breaches of bailment and conversion.
For the custom defence in point (c) above, the Respondents asserted that it is the local custom that no bills of lading are presented, or required, in exchange for the supply of bunkers by bunker barges to other vessels. The Court commented that in the circumstance where the Bills of Lading were construed as regular order bills, the delivery of the Bunkers can only be lawfully done against the production of the Bills of Lading. The Court viewed that even if the term requiring delivery only against the Bills of Lading was found to be an implied term, it would nevertheless be a term of the contract of carriage. Evidence of custom is admissible only “to explain mercantile expressions and to add incidents, or to annex usual terms and conditions which are not inconsistent with the written terms of the parties”, it cannot change the intrinsic character of the document.
For defence (d), the Respondents argued that the Appellant was estopped from asserting that delivery only against the Bills of Lading was a requirement under the carriage contracts. However, the silence and inactivity of the Appellant for not enforcing its rights for the previous shipments was not acquiescence to delivery of the cargoes without production of any bills of lading. The Respondents’ position should be that the Appellant had in fact treated the earlier Bills of Lading as nothing more than receipts and would be inequitable to assert otherwise now. This would give a triable issue for the Court to decide.
The Court found that the defence in point (e) above was unarguable as the Bills of Lading expressly bore the Vessels’ stamp and the representative’s signature and the Court found that the representative had authority to sign on the Bills of Lading as he was in the ordinary course in performing his role.
Conclusion
After considering the above reasoning, the Court granted unconditional leave for the Respondents to defend the Appellant’s claims. This case discussed the role of the bills of lading in a delivery of cargoes and the shippers, carriers or buyers should be aware of the above discussed legal principles. It is advisable to set out sufficiently clear description of the content of the bills of lading, including but not limited to the destination of delivery of the products, the liabilities of any misdelivery or whether it is possible (or agreeable by the parties) to deliver the cargoes without the production of original bills of lading.
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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
