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Legal Update

Straight Bills Of Lading - Application Of The 'Rafaela S' In Hong Kong

13 August 2007
Mayer Brown JSM Legal Update

Summary

The House of Lords' decision in The"Rafaela S" (2005) confirmed that (1) a straight bill of lading, though non-negotiable, is a bill of lading for the purposes of the Hague-Visby Rules and (2) the presentation of the original bill is a pre-condition to obtaining delivery where there is an express term to such effect. There was some uncertainty as to how this case would affect the position under Hong Kong law, given the conflict between House of Lords' judgment and the earlier decision of the Hong Kong Admiralty Court in The "Brij" (2000). In the recent case Carewins Development (China) Limited v Bright Fortune Shipping Ltd. and Hecny Shipping Ltd. the Hong Kong Court of Appeal confirmed that the approach in The "Rafaela S" should be followed.

Full Update

Introduction

Bills of lading made out "to order", or to a named party with the words "or to order", are generally known as "order bills of lading". They are transferable, and are accepted as documents of title. Where a bill of lading is made out to a named consignee without adding the words "to order", the cargo is deliverable straight to the named consignee and the bill is non-transferable. Such a bill is known as a "straight" bill of lading. 

It was generally accepted that where a straight bill of lading was used, the carrier was to deliver the goods to the named consignee without the production of the original bill of lading. In The "Brij" [2000] 3 HKC 313, consignments of cargo were the subject of both "straight" ocean bills of lading and "to order" forwarders' bills.  The previous course of dealing demonstrated that cargo interests relied solely on the negotiable forwarders' bills of lading as being the operative documents of title, the "straight" ocean bills being no more than receipts and evidence of the contract of carriage between the forwarders and the ocean carriers. In that regard the straight ocean bills of lading had remained in a drawer at the forwarders' office. The Hong Kong Admiralty Court observed that "the essence of Straight Bills is that they are not negotiable and the contractual mandate is to deliver to the named consignee without the production of the original document".It dismissed the action against the owners, holding that the owners were not in breach of their duty of care by delivering the cargo to the named consignee under the straight bill without production of the original bill.  

However, in The "Rafaela S" [2005] 1 Lloyd's Rep. 347 the House of Lords affirmed the English Court of Appeal's decision that a straight bill of lading, otherwise in the form of a classic bill of lading, should be viewed as a bill of lading within the meaning of the Hague-Visby Rules notwithstanding that it was non-negotiable, and that the original bill should be produced to obtain delivery where there are express terms to such effect in the bill in question. 

Since House of Lords' decisions are no longer of binding effect in Hong Kong after the 1997 handover, there was as a result of The "Rafaela S" decision a divergence in the Hong Kong courts' and the English courts' approach towards straight bills. The Hong Kong Court of Appeal in its recent judgment in Carewins Development (China) Limited v Bright Fortune Shipping Ltd. and Hecny Shipping Ltd. (CACV 328/2006 and CACV 329/2006) followed The "Rafaela S" and confirmed that the named consignee under a straight bill should produce the original bill to obtain delivery.

Carewins Development v Bright Fortune Shipping

In Carewins, straight bills of lading were issued to the Plaintiff, naming the buyer who contracted to purchase the goods from the Plaintiff as consignee without the words "to order". The goods were delivered by the Defendants to the named consignee without the production of original bills of lading. The consignee failed to pay the Plaintiff for the goods. One of the issues before the Court of Appeal was whether the Defendants as carriers were in breach of their contractual obligations to the Plaintiff by releasing the goods without production of the bills of lading. 

To consider whether goods may be released to a consignee named in a straight bill without production of the original bill, the Court of Appeal had first to decide whether a straight bill is a "bill of lading or any similar document of title" within the meaning of Hague-Visby Rules. The Court relied heavily on the House of Lords' decision in The "Rafaela S" in its analysis of the issue. In The "Rafaela S", the House of Lords held that straight bills are bills of lading within the meaning of Article I(b) of the Hague-Visby Rules and that the original bill should be produced to obtain delivery given the express terms to such effect in the bill in question. The reasons for the ruling can be summarised as follows:

(i)  A straight bill of lading shared all the principal characteristics of a bill of lading except for the fact that such bill was only transferable to a named consignee and not generally. In the hands of the named consignee it was his document of title. Its function could not be equated with that of a sea waybill, which is never a document of title and, unlike a bill of lading, does not contain the standard terms of the carrier on the reverse side and is not issued in sets of three. 

(ii)  There was relatively widespread mercantile use of straight bills at the time the Hague Rules were adopted. It was inferred from the absence of any special provision to exclude straight bills from the scope of the Rules that such bills were intended to be covered. Taking into account the international nature of the Hague Rules, particular attention was paid to the practice surrounding the use of such documents in other legal systems.

(iii)  A named consignee who received an order bill of lading and a named consignee who received a straight bill of lading should be afforded the same protection by the Hague Rules.

In  The "Rafaela S", the cargo claim was brought under a straight bill of lading which expressly required presentation for delivery. In the light of such express term, the House of Lords concluded that the straight bill in question was a document of title and that the production of the original bills was a pre-condition to obtaining delivery in that case. However, Lord Bingham made a comment that he would, if necessary to do so, hold that production of the bill is necessary even where there is no express provision to that effect. 

In Carewins, the Hong Kong Court of Appeal held that straight bills are documents of title and that production of the original bill is a pre-condition to obtaining delivery. However, it appears that the Hong Kong court did not simply follow the House of Lords' judgment that straight bills are documents of title where it expressly provides that goods are to be released against the original bill, but went further by applying Lord Bingham's obiter dictum and holding that straight bills are, as a general principle, documents of title and therefore production of the original bills is necessary to obtain delivery of cargo.

While the Hong Kong Court of Appeal seemed to be prepared to hold that the production of the original bill is necessary simply on the ground that straight bills are documents of title (i.e. irrespective of the actual wording of the straight bill), it went on to consider the construction of the attestation clause on the bill in question.  The Defendants sought to distinguish The "Rafaela S" on the basis that, in that case, the bill expressly provided that the bill had to be surrendered, whereas the bills of lading in Carewins did not contain any provision expressly requiring the production of original bills against delivery, but bore the attestation that "the carrier by its agents signed three (3) original Bill of Lading all of this tenor and date, one of which being accomplished the others to stand void". The Court took the view that the only reason for "voiding" two original copies or rendering them ineffective was that the remaining original bill could serve as the document of title; such attestation clause, the Court considered, indicated that the bills of lading as documents of title needed to be produced to obtain the underlying goods. 

It is also to be noted that in the English Court of Appeal's judgment in The "Rafaela S" ([2003] 2 Lloyd's Rep. 113), Rix L.J. commented that The "Brij" could not be relied on to support the proposition that under a straight bill a carrier is bound and entitled to deliver the goods to the named consignee without production of the bill, because the Judge in The "Brij" failed to provide any reasoning to support such proposition other than his reliance on Benjamin's Sale of Goods (5th ed.) and no authority was mentioned. The Hong Kong Court of Appeal made a similar comment, and considered that The "Brij" was incorrectly decided insofar as the presentation rule in respect of straight bills is concerned.

The Court concluded that the Defendants were in breach of the contracts of carriage contained in the bills by releasing the goods to the named consignee without requiring the original bills to be produced.

Comments

The question before the House of Lords in The"Rafaela S" was whether a straight bill of lading is a document of title for the purposes of the Hague-Visby Rules. The House commented that "the question before the House is not whether a straight bill of lading is a document of title at common law". Their Lordships seemed to have accepted that "documents of title" under the Rules did not import the English traditional concept of title to goods and that straight bills of lading were not "documents of title" at common law. 

The Hong Kong Court of Appeal, on the other hand, said that "once it is accepted that a straight bill is a bill of lading, it must be that a straight bill is a document of title in the same way that an order bill is a document of title". However, unlike the House of Lords, it did not qualify its comment to say that straight bills are documents of title for the purpose of the Hague-Visby Rules. It is unclear whether the Court of Appeal was prepared to go further to regard straight bills as documents of title at common law. 

According to Benjamin's Sale of Goods (7th edition, at paragraphs 18-007 and 18-062), the traditional meaning of a document of title at common law is "a document, the transfer of which operates as a transfer of the constructive possession of the goods covered by the document and may, if so intended operate as a transfer of the property in them". While the delivery of an endorsed "to order" bill has the effect of transferring the constructive possession of or property in the goods it covers, such function cannot be performed by a straight bill given its lack of negotiability. It remains to be seen whether in future cases the Hong Kong courts will regard a straight bill as a document of title for the purposes of the Hague-Visby Rules only (as in The "Rafaela S"), or will go further and treat it as a document of title "in the same way that an order bill is a document of title".

Another issue which is unclear is whether (a) as the Court of Appeal appears to suggest, production of the original straight bill is a pre-condition to obtaining delivery generally (regardless of the terms of the bill), which in effect means that straight bills and order bills are to be treated the same insofar as delivery is concerned, or (b) the wording of the specific bill of lading in question will be examined in each case before the court concludes whether production of the original bill is necessary. In Carewins, the Court implied into the contract of carriage the requirement that the original bills must be surrendered on the basis of the attestation clause. A question arises whether Carewins can be distinguished if the kind of attestation clause in Carewins is absent, or if the term requiring the production of the bill for delivery is expressly said to be applicable only if the bill is made out "to order".

Conclusion

The decision in Carewins followed the English judicial approach that, even if a straight bill of lading is used, the original bill is required to be produced to obtain delivery where there is an express or implied provision to such effect in the bill. The earlier Hong Kong decision in The Brij, that goods under a straight bill can be released to the consignee named in the bill without production of the original bill, is in effect overruled. However, Carewins suggests that the Hong Kong courts will regard, as a matter of general principle, straight bills of lading as documents of title and that production of the original bills for delivery is necessary.

Nevertheless, one of the most significant practical implications of The "Rafaela S" and Carewins on the carriage of goods by sea is the requirement of production of the original straight bill of lading for delivery. In order to avoid any dispute which may arise from delivery under a straight bill, it is a good practice for carriers to deliver goods only upon production of the original straight bill whether or not the bill expressly requires presentation for delivery.

Related Links

The Rafaela S - House Of Lords Rule On Straight Bills Of Lading (28 Feb 2005)

Straight Bills Of Lading - The Rafaela S (31 May 2004)

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