Bills of lading are often used in mercantile documents in international trade. The Court of Final Appeal (the “CFA”) handed down a judgment on 12 May 2009 and clarified the law on bills of lading and the use of exclusion clauses in Carewins Development (China) ltd v Bright Fortune Shipping Ltd & Anor [2009] 5 HKC 160.

Background  

Carewins Development (China) Limited (“Carewins”, respondent in the CFA) is a Hong Kong exporter. It entered into a contract of sale of a large consignment of footwear to Artist Fashion Inc. (“Artist Fashion”). Carewins arranged for shipment from its factory in China to Hong Kong and then to Hong Kong to Los Angeles (“LA”). Two carriers, Bright Fortune Shipping Limited and Hecny Shipping Limited (the “Carriers”) each issued a bill of lading (which are identical for all material purpose) for the shipment.  

In the lower courts, Carewins brought two claims, against different carriers, namely Bright Fortune Shipping Limited and Hecny Shipping Limited, freight forwarders who acted as the contractual carrier in relation to the shipments. As the facts of the two disputes were similar, the cases were heard together. The appellant of the case is one of the Carriers, Bright Fortune Shipping Ltd (the “Carrier”).  

The case concerned with 23 containers shipped by Carewins pursuant to the contract of sale with Artist Fashion. When the containers arrived at LA, they were handled by Los Angeles freight forwarders Trans-Union Group Inc., which had a dual role in the handling. They acted as the Carriers’ agents in the handling of the containers, and had also been appointed by Artist Fashion as their delivery agents with instructions to take delivery of the container and to transport them to Artist Fashion’s premises. Artist Fashion obtained the goods without having presented any boil of lading covering the consignments.  

Issues of the case  

There are two main issues of the case:  

1)   in relation to the delivery of consignment, whether the presentation rule applied to straight bills of lading  

In essence, the crux of the matter was, whether an original straight bill of lading needs to be presented to the Carrier in order to take delivery of goods.  

2)   in relation to the exemption clause in the bill of lading, whether the Carrier is exempted from liability by the exclusion clause in the bill of  lading  

The relevant exclusion clause materially provided (clause 2(b)):  

“…the Carrier shall be under no liability in any capacity whatsoever for…misdelivery of…the Goods however caused whether or not through the negligence of the Carrier, his servants or agents or sub contractors…” (emphasis added) (“Clause 2(b))”)  

Litigation History  

Court of First Instance (the “CFI”)  

At first instance, the CFI followed the rulings of the Court of Appeal in Singapore in Voss v APL Co PTE Ltd [2002] 2 Lloyd’s Rep 707 and the House of Lords in MacWilliam Co Inc. v the Mediterranean Shipping Co. (The “Rafaela S”) [2005] 1 Lloyd’s Rep 347 (the “Rafaela S Case”). The courts had held in both cases that a straight bill was a bill of lading. It has to be produced before delivery could take place, even there was no expression provision specifying this in the bill of lading itself.  

Court of Appeal (the “CA”)  

On appeal by the Carriers, regarding the first issue on whether the Carriers had breached their contractual obligations to Carewins by delivering the shipment to Artist Fashion without the production of bills of lading, the CA discussed the Rafaela S Case and said that a straight bill of lading is a document of title, and has to be produced before an effective delivery of goods could be effected. The Carrier’s appeal on this point failed.   On the issue of exclusion clause, the Court found Clause 2(b) ambiguous and therefore was not sufficient clear to exclude the Carriers’ liability for misdelivery.   The appeal was dismissed.  

The present CFA judgment  

The CFA upheld the decisions of both the CFI and the CA and unanimously dismissed the appeal.   Here are a few highlights of the judgment:  

On the legal characteristics of bills of lading  

The bill of lading is in law a document of title to the goods shipped. As Ribeiro PJ quoted in the judgment from Sanders Brothers v Maclean & Co (1883) 11 QBD 327, a bill of lading carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner.  

On the presentation rule  

The CFA considered, given the importance of the bill of lading in international trade, the law is established in relation to order bills that the carrier is both entitled and bound to refuse to release the goods shipped to a person claiming delivery save against production of an original bill of lading covering those goods. Lord Denning’s words in the English Court of Appeal case Kuwait Petroleum Corporation v I & D Oil Carriers Ltd, The Houda [1994] 2 Lloyd’s Rep 541 were quoted in the judgment:  

“It is perfectly clear law that a shipowner who delivers without production of the bill of lading dose so at is peril. The contract is to deliver, on production of the bill of lading, to the person entitled under the bill of lading.”  

On the application of the above general principles to straight bills of lading, the court considered the particular form of the present bill of lading in issue, and in particular, the following features:  

1)            the word ‘ORIGINAL’ appeared on the form;

2)            the details of the goods were set out;

3)            an attestation clause which read:  

'Received for shipment in apparent good order and condition. Terms of this Bill of Lading continued on reverse side hereof.  

In Witness Whereof, the carrier by its agents has signed three (3) original Bill of Lading all of this tenor and date, one of which being accomplished the others to stand void.'  

The attestation clause was found by the court as significant, as it referred to the accomplishment of the bill, which meant completing performance of the contract of carriage by delivery against surrender of one original bill of lading. The attestation clause is a contractual provision which only makes sense in a context where the parties intend the bills to be presented to the carrier as the justification for release of the cargo to the holder of the bill, and in the present case there is a necessary implicit intention of the parties that the bills have to be produced as the basis for obtaining delivery of the goods and that accomplishment of one original rendered the others in the set void.  

It should be noted, however, that even given what was discussed above regarding the significance of the wording of the attestation clause, Ribeiro PJ added that, perhaps save in exceptional circumstances, the presentation rule would be an incident of the contract evidenced by a straight bill even if it contains no attestation clause.  

On the effectiveness of the exclusion clause  

The court went on to discuss whether the Carrier was exempted from liability by the exclusion clause in the bill of lading.  

Ribeiro PJ first considered the legal principles applicable to the construction of exclusion clauses. He held that in a commercial contract where there is no inequality of bargaining power, the effectiveness or otherwise of an exemption clause is purely a matter of construction.  

Two general aspects in relation to the construction of exclusion clauses were considered. First, the exemption wordings have to be free from any ambiguity, with the clause being construed against the person relying on the exemption. Second, the clause needed to be construed in the context of the contract as a whole, taking into account its nature and object.  

In the present case, applying the above general principles, the court considered that Clause 2(b) is susceptible to more than one meaning and that it can be given adequate content as an exemption clause which operates without nullifying the cardinal obligation contained in the presentation rule. Given its natural and ordinary meaning, the word ‘misdelivery’ is capable of covering a range of situations which all involve the cargo being delivered to the wrong person, but not all misdelivery would be negligent. The court held that Clause 2(b) only applied to cases of mistaken or inadvertent misdelivery on the one hand and deliberate misdelivery on the other.  

In the end, the court considered the word ‘misdelivery’ in Clause 2(b) is capable of being read to mean a delivery made in error to a wrong person or to a wrong place, expressly extended by the clause to cover negligent errors, but not covering a conscious delivery to a recipient without presentation of an original bill of lading, which is essentially the facts of the present case. The Carrier’s liability is not exempted by virtue of Clause 2(b).

Conclusion

The important feature of this case is that the CFA had clarified the law on straight bills of lading and had brought into Hong Kong legal principles of England and Singapore. Following the present case, it is important for carriers to ensure that it receives an original bill of lading before discharging the goods, failure of which may lead to claims of breach of contract and conversion.