Introduction

A recent decision laid down by the Commercial Court of the High Court of England and Wales (the “Court”), UniCredit Bank AG v Euronav NV [2022] EWHC 957 discussed the nature of a bill of lading and whether its legal effect changes when the chartererparty is novated. Is a bill of lading a mere receipt or does it contain the same effect as a contract of carriage?   

Background

This claim was brought by UniCredit Bank AG (the “Claimant”) against the owner of a vessel “SIENNA” (the “Vessel”), Euronav N.V. (the “Defendant”). The Vessel was chartered to BP Oil International Ltd (“BP”) for the carriage of low sulphur fuel oil (the “Cargo”) from the Netherland to UAE, to be sold to Gulf Petrochem FZC (“Gulf”). Gulf’s purchase of the Cargo was funded by the Claimant by way of a letter of credit, and a bill of lading was issued and signed by the Defendant acknowledging the shipment of the Cargo to the destination (the “Bill of Lading”). Gulf subsequently replaced BP to be the charterer of the Vessel through a novation agreement (the “Novation Agreement”), on the condition that the Cargo would be resold to sub-buyers approved by the Claimant (the “Sub-buyers”). The Cargo was later discharged by the Defendant without requiring any person to produce the Bill of Lading. Gulf turned out to be involved in a wide scale fraud and became in liquidity distress. After BP endorsed the Bill of Lading to the Claimant, the Claimant claimed against the Defendant for misdelivery due to the lack of production of the Bill of Lading.

Issues

When considering whether the Claimant has any entitlement to sue against the Defendant for misdelivery, the Court has to decide whether the Bill of Lading contained and/or evidenced a contract of carriage of the Cargo. The Court has considered 2 main issues:

1.       Whether the Bill of Lading contained a contract of carriage of the Cargo on or after the date of the novation and prior to the alleged misdelivery; and

2.       Alternatively, whether the Defendant’s obligations were contained exclusively in the Charterparty and/or the Novation Agreement?

Nature of a bill of lading

The Court reiterated 2 basic principles about the nature of a bill of lading:

1.       Where a shipper is also the charterer, the bill of lading is not the contract of carriage of goods but a mere receipt; and

2.       When a bill of lading is issued to a charterer and indorsed to a third party, it attains contractual status upon indorsement on the basis that a new contract springs up between the ship and the consignee on the terms of the bill of lading.

This case is special in that there was no indorsement of the Bill of Lading from the charterer to a third party. The Claimant received the Bill of Lading endorsed by BP but not Gulf. As BP remained in hold of the Bill at the time of delivery but had ceased to be the charterer from the date of novation, the Bill of Lading was no longer in the hands of the charterer from the novation date.

The Claimant submitted that the current situation was no different to the position which would result on indorsement of the Bill. The novated charterparty contained a further contract between the Defendant and Gulf, as it operated as a transfer of rights and obligations under the charterparty from BP to Gulf. The Defendant however counter-argued that the Claimant’s contention on the creation of contractual rights was not supported by any authority. The arrangement between the Defendant and BP was terminated by the novation of the charterparty. The Defendant and BP had never intended that their relationship be governed by the Bill of Lading once their existing relationship was dissolved.

The existence of contract

The Claimant asserted that the Bill of Lading only temporarily lost its full contractual status whilst in the hand of BP. When the charterparty was novated to Gulf, the Bill was no longer in the hand of the charterer and thus was no longer a mere receipt, which revived the contractual status of the Bill of Lading.

Considering the line of authorities, the Court held that a bill of lading is a mere receipt which then acquires or attains contractual status as if a new contract springs up, as a shipowner is taken to have issued the bill of lading to the charterer intending to pass it on to a third party as the contract of carriage.

The Court agreed with the Defendant’s submissions that the Claimant failed to establish that the Bill of Lading contained or established a contract of carriage after the novation of the charterparty. Although the Defendant may be taken to have agreed to the creation of a new contract when BP indorses the Bill of Lading to a third party, the same cannot be inferred when the contractual relationship between BP and the Defendant dissolved after novation of the charterparty. The Parties indeed did not intend that their relationship to be governed by the Bill of Lading where the contractual relationship between them in the charterparty was terminated. Distinction should therefore be made between the transfer of the bill by indorsement and novation of the charterparty.

In view of the above grounds, the Court concluded that the Bill of Lading did not contain the contract of carriage between the Defendant and the lawful holder of the Bill of Lading, BP, on or after the Novation Agreement and prior to the alleged misdelivery. Therefore the Claimant, being the lawful holder of the Bill of Lading after BP’s endorsement, does not have contractual rights to sue the Defendant under the Bill of Lading.  

Causation

The Court also dismissed the Claimant’s claim because of the lack of causation between the Defendant’s failure to request production of the Bill of Lading and the loss of the Claimant. The Cargo was discharged by way of Ship to Ship transfer without production of the Bill of Lading, which was not abnormal in the circumstances of COVID where there was difficulties accessing the ports. As evidence revealed that the Claimant would not have insisted on the production of Bill of Lading and would have allowed the discharge without the production of Bill of Lading, the Court considered that the Claimant would have suffered the same loss in any event. Even if the Court erred in its analysis on the above issues, the Claimant’s claims are doomed to fail.

Key takeaways

This case serves as a reminder that a bill of lading is only a receipt of goods if both the shipper and the charterer are the same entity, and it would not spring up a new contractual relationship by the novation of charterparty.  As such, caution should be taken when drafting the novation agreement so that the parties’ intention to be bound by the terms of the bill of lading can be expressly stated.

 

For enquiries, please feel free to contact us at:

E: shipping@onc.hk                                                           T: (852) 2810 1212 W: www.onc.hk                                                                    F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

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.

Published by ONC Lawyers © 2022