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Legal Update

Straight Bills Of Lading - The Rafaela S

31 May 2004
Mayer Brown JSM Legal Update


Over the years straight bills of lading have given rise to a number of difficulties for both cargo interests and carriers. This has largely been due to the lack of clarity concerning the rights of the holders of such bills, the carriers' liability in respect of delivery, and the applicability of the Hague-Visby Rules. The decision of the English Court of Appeal in The Rafaela S [2003] 2 Lloyd's Rep. 113 has settled some of the issues, although a number of uncertainties remain.

Full Update

Straight Bills v Order Bills - The "Traditional View"

Where a bill of lading is made out to a named consignee without adding the words "to order", the bill is non-transferable and is generally known as a straight bill of lading. 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.

It was said by the Hong Kong High Court in "The Brij" [2000] 3 HKC 313 that the accepted view of the shipping world in relation to straight bills of lading was as follows:

"...Straight Bills are also very much known to the shipping world and 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."

However, the position must be re-visited in light of the recent decisions of the Singapore and English Courts of Appeal.

Voss v APL

In Voss v APL [2002] 2 Lloyd's Rep. 707, the shipper agreed to sell a convertible Mercedes Benz motorcar to a Korean buyer. A down-payment was made. The shipper then made an arrangement with the carrier to ship the motorcar from Hamburg to Busan, South Korea.

In the bill of lading the buyer was named as the consignee. Its name appeared in the "consignee" box without the words "to order". The three sets of the original bill of lading were held by the shipper. The following words appeared on the front of the bill:

"A set of 3 originals of this bill of lading is hereby issued by the Carrier. Upon surrender to the Carrier of any one negotiable bill of lading, properly endorsed, all others shall stand void."

Shortly after the carrying vessel arrived at Busan, the carrier released the motorcar to the buyer without production of any original bill of lading. The buyer failed to pay the balance of the purchase price of the motorcar. The shipper then turned to the carrier to demand payment of the balance. The carrier rejected the claim, arguing that they were entitled to deliver the motorcar to the buyer without the production of the original bill of lading.

The Singapore Court of Appeal affirmed the decision of the court of first instance, and held that the production of the original bill of lading is necessary to obtain delivery even where a straight bill is used. The Court said that if the parties had intended to create a sea waybill they would have done so. Although the characteristic of transferability was absent in straight bills, this did not entail that the parties had intended to abandon the requirement for delivery upon presentation.

The Court considered that the parties must have intended to retain all the other features of a bill, other than the characteristic of transferability, by issuing the instrument as a bill of lading. To hold otherwise it would be "overly restrictive" for an unpaid seller who wishes to use a non-negotiable bill of lading while retaining his security for payment. They accepted that where a straight bill is used the cargo should be delivered only to the named consignee; they nevertheless held that delivery should be made against production of the original bills. 

A similar view was taken by the English Court of Appeal in The Rafaela S [2003] 2 Lloyd's Rep.113.

The Rafaela S

In The Rafaela S a cargo claim was brought against a demise charterer by the buyer of goods under a straight bill of lading which expressly required presentation for delivery. The case raised a number of important issues, including whether the claimants had title to sue, and whether the defendant's liability, if any, was subject to the package limitation of the Hague-Visby Rules, implemented in the UK by the Carriage of Goods by Sea Act 1971. The latter question depended largely on whether a straight bill was "a bill of lading or any similar document of title" within Article I(b) of the Hague-Visby Rules.

The arbitrators and the court of first instance found in favour of the demise charterer, following the traditional view that a straight bill was not a document of title. The decision was reversed by the Court of Appeal. 

In his leading judgment, Lord Justice Rix examined the relevant authorities and discussions in textbooks, and concluded 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 Rules notwithstanding that it was non-negotiable. One of the reasons for this conclusion was that a straight bill was in principle, function and form much closer to a classic bill than to a non-negotiable receipt, and it required production of the bill on delivery. 

Accordingly, a bill of lading in the form of an otherwise classic bill of lading, which is made out to a named consignee without the words "to order" and which expressly requires production of the bill for delivery, is covered by the Hague-Visby Rules (provided that the bill of lading is issued in a contracting state or incorporates the Rules, or if the carriage was from a port in a contracting state).

Would the Hague-Visby Rules have applied if the bill of lading had not expressly required presentation? Yes, in the view of Rix LJ who observed that this was the conclusion in Voss v APL and the view of the UK Law Commission, although it was unnecessary for the Court of Appeal to decide the point. Accordingly, it is probable that the courts will consider a straight bill to be in principle a document of title even in the absence of the provision requiring its production to obtain delivery.

The decision of the Court of Appeal is subject to appeal to the House of Lords.

Unresolved Question

While The Rafaela S has clarified that the Hague-Visby Rules apply to straight bills of lading, an important question remains.

Where a straight bill of lading omits a clause expressly requiring that the bill be presented for delivery, is the carrier nevertheless under a legal obligation to obtain production of an original bill? It is clear that Rix LJ believed that the bill of lading is the leading form of proof, and the carrier should insist on presentation for delivery of cargo whether or not the bill of lading expressly required it. However, if Rix LJ's view is adopted, it would seem that, contrary to the practice in respect of straight bills, proof of the consignees' identity would no longer be sufficient for the purpose of obtaining delivery.

The Court of Appeal's decision in The Rafaela S has answered some of the key questions regarding straight bills. In particular, it confirmed the application of the Hague-Visby Rules to straight bills and the status of straight bills as documents of title. 

However, one important question which remains is whether a carrier needs to deliver cargoes consigned under a straight bill against the original document. Needless to say, in order to avoid disputes in this respect, it is good practice for carriers to ask for the original straight bills before releasing cargo. 

Related Links

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

For further information, please contact:

Name: Rita Y.S. Lau
Position: Solicitor
Phone: +852 2843 4324
Fax: +852 2103 5490

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