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BILLS OF LADING (2)
((i) As Document of Title (ii) As Transferring Contractual Rights)
NOTE: under a Letter of Credit arrangement, the buyer pays the bank, and the bank pays whoever holds the LoC (i.e. the seller)
- This transfers the risk of non-payment from the seller (who has to chase the buyer in the absence of the LoC) to the bank (who is now the one chasing the buyer)
- But that assumes that the bank has paid out - that's why the mere opening of a LoC
(even irrevocable) is insufficient to transfer property
And bank will only pay out against conforming documents
Autonomy principle -> the separation and independence of the letters of credit from the underlying contract for the credit in respect of which the letter of credit is issued
Documents of Title
Document of Title At Common Law
- What qualifies as a document of title at common law?
o When there is a custom at common law to the effect that the document gives possessory rights
- What is its significance?
o It gives you constructive possession of the goods
- The short answer is that generally, only order or bearer bills are documents of title at common law
Exceptions being Mate's Receipt from SG to Sarawak
Document of Title under Factors Act
- What qualifies?
o Any document listed under s1(4)! E.g. B/L, dock warrant, warehouse-keeper's certificate etc
- What is its significance?
o Not the same as at common law!
- What is the significance of being able to say that your document falls within 1(4)?
o You can rely to s2(1)
o And other sections like S24 and S25
Also helpful in relying on statutory exceptions to the nemo dat rule
Such statutory exceptions usually refer to documents of title as referred to in s1(4)
Is an order B/L a document of title?
- At common law
But NOTE: it does not automatically transfer constructive possession -> there must be intention to pass constructive possession (Future Express)
For e.g. in Future Express, because the bank knew that the goods were discharged and long gone, transfer of the B/L to the bank did not transfer constructive possession
- Under Factors Act?
o Yes, clearly
Is a straight B/L or sea waybill a document of title?
- What is the difference between a sea waybill and a straight B/L?
1 Sea waybill simply asks the carrier to deliver to the person named in the sea waybill
No need to produce
But you need to produce a straight B/L at delivery (Rafaela S)
- Is either a document of title at common law?
Rafaela S says straight B/L is a document of title in ONE sense
For the HV rules! Where it refers to a "B/L or some other similar document of title"
Which is unfortunate phrasing, because it clearly doesn't mean the same thing as document of title at common law
- Is there any other difference between the two?
- Does a straight B/L count as a document of title under s1(4) Factors Act?
o Likely yes, since you have to produce it to claim delivery
- What about sea waybills?
o Unclear, it might fall within "any other goods"
o But then you don't have to produce it to claim delivery
Is a ship's delivery order, delivery order, or warrant a document of title?
Ship's delivery order
An order to the party in actual possession (e.g. the ship/carrier) to deliver the goods to another
Person giving order is likely to be the owner of the goods (e.g. seller)
o Telling the ship to deliver the goods to the buyer
Usually used when a seller is trying to break up a bulk cargo covered by the same B/L
- Delivery order?
o Given by the person in actual possession
- The confusion here is that COGSA uses the terminology of "ship's delivery order", but what it means by SDO is actually a DO! Since it refers to an undertaking by the carrier
- Are they documents of title at common law?
o NO - The Julia
- Under Factors Act, is it a document of title?
o What about a delivery warrant?
YES, covered under Factors Act 1(4) a swell
NOTE: distinguish between a warrant and a delivery order! (see below)
- What is attornment?
o The bailee (carrier) recognises that the goods are held on behalf of another o-Ship's delivery order -> an order TO the ship to deliver
Cf Ship's delivery warrant -> an undertaking BY the ship to deliver
Ship's delivery warrant
A document issued by the person in actual possession of the goods, undertaking to deliver the goods to someone (usually the buyer)
o Sometimes said to amount to an attornment
Confusing: COGSA 1992 uses the language of a ship's delivery order, but what constitutes a
SDO under COGSA is strictly speaking a ship's delivery warrant (because it has to be an undertaking by the carrier)
Both are documents of title under the Factors Act
S.1(4) says 'warrant or order', which implies there's no difference
Waren Import  seems to require a ship's delivery warrant - seems to require an undertaking from someone in actual possession
Electronic pin codes?
- At common law? No
- Under FA? No (not a document)
o However, Glencore shows that it's possible to utilise electronic codes as a means of fulfilling obligations
- What is a mate's receipt?
o Just an acknowledgement that the goods have been loaded on board, usually exchanged for a B/L
- Are they a document of title?
o NO (Nippon Yusen) - except between Singapore and Sarawak (Kum v Wah Tat Bank)
o There is a custom between SG and Sarawak that they are documents of title
But elsewhere in the world, they are NOT documents of title at common law
- Under FA?
o Yes, under "any other document"
o Parties can sometimes try to use "mate's receipts" to create security (e.g. Nippon
Yusen, where bank told carrier not to issue a B/L except against a MR, but it doesn't really work)
- Thus, the short answer is that generally, only order or bearer bills are documents of title at common law
Transferring contractual rights and liabilities
Transfer of Bill of Lading
- When A transfer B/L to B
o Transferee gains rights under s2(1) COGSA
o Transferor loses his rights (s2(5))
o But NOTE: there must be an intention that the rights should pass (Erin Schulte)
o Not present in Erin Schulte because bank initially rejected it (only wanted document for inspection)
o Liabilities of original shipper
E.g. liability to pay freight
Liability of the original shipper continues to stay with the shipper (s3(3))
o Liabilities of transferee
Liability is incurred when the conditions under s3(1) are fulfilled
Take or demand delivery
Must be a "voluntary transfer of possession" and amount to "more than just co-operating in the discharge of the cargo from the vessel"
(The Berge Sisar)
In The Berge Sisar: taking samples of oil for testing did not count as delivery
The giving of a letter of indemnity by the transferee to the carrier has been said not to amount to a "demand" for delivery; and a fortiori there is no such "demand" by the transferee where (as in The Berge
Sisar ) such a letter is given by someone other than the transferee to whom the delivery is to be made.
3 Also must take or demand delivery from carrier
So an ultimate buyer who takes delivery from an intermediate buyer will not incur liability
This is a criticism of Lord Hobhouse's position in The Berge
Sisar -> he argues that if the carrier has a claim against the original shipper and the ultimate buyer, the carrier doesn't need a claim against the intermediate buyer, but here we see that the ultimate buyer might not always incur liability
Make a claim under CoC
What sort of party is s3(1) specifically designed to protect?
Especially if the bank takes the goods as pledgee
Treitel: Section 3(1)(b) in terms requires the claim to be made "under the contract of carriage" and, although there are no corresponding words in s.
3(1)(a) to qualify the phrase "demands delivery", that phrase is in The Berge
Sisar interpreted as being subject to a similar requirement
i.e. there must be reliance on the contract to support the demand
(3(1)(a)) or the claim (3(1)(b))
The insistence on such reliance might make it possible for the transferee to avoid liability by putting forward some other legal basis for his demand or claim: e.g., by basing his "demand" for delivery on his title or making his "claim" against the carrier in tort on the ground of the latter's negligence.
o What if the buyer transfers on again to a sub-buyer?
He loses his rights (s2(5))
He also loses his liabilities (Berge Sisar)
Although exceptions from Berge Sisar (See Treitel)
1) "Such a result could follow from "the conduct of one or other party" giving rise to estoppels or from "other documents or agreements" or (it may be added) from an implied "Brandt v
2) He may be liable if he incurs liability via an irreversible step (e.g.
taking "actual delivery of the goods" rather than a reversible step
(e.g. making a demand for delivery and later withdrawing it)
o In the latter, he precludes "any further dealing with the goods" between him and the carrier, thus his liability under s3 would not cease
This makes sense under the principle of mutuality, since he has gained the benefit of delivery
Transfer of Ship's Delivery Order
- SDO tends to arise in a situation where you have a BL covering bulk cargo
And then shipper issues a number of SDOs, to affect the subsequent distribution of the bulk to a number of buyers
- What happens to the rights of the shipper?
o Transferred, to whoever's name is named in the SDO
o But does the shipper lose his rights?
NO! READ s2(5) carefully!
Because in a bulk case, he may need to retain some of his rights
- What is a SDO under COGSA?
o An undertaking by the carrier (s1(4))
4 What's the liability position?
o S3(3) leaves liabilities with the original shipper
What about a buyer or pledgee?.
S3(1) applies, but augmented by S3(2) -> pro rata arrangement, since you may only have taken a proportion of the bulk
BE CAREFUL ABOUT THIS -> pro rate depends on what liability you're talking about
If it's something like freight, it may be split depending on your proportion
But if it's sth like dangerous cargo, if only YOUR cargo is dangerous, you may have to bear the full extent of the liability
Consignment of goods under a sea waybill
o Transferred to whoever is named in the sea waybill
Shipper retains the rights however (s2(5))
o Same as B/L -> s3(3) and s3(1)
- Is a straight B/L covered under COGSA 1992?
o Yes -> they're treated the same as a sea waybill (given that both have named parties)
- When is a B/L spent?
o When the goods are delivered to the person entitled to delivery under the B/L but the B/L is still in circulation
NOTE: B/L is only spent when full delivery is made to the person entitled under the bill
Because now you no longer need constructive possession because you have possession in fact
Only partial delivery is not enough!! (i.e. if only half the oil has been pumped to your tanks, the B/L is not yet spent)
o Why would the carrier be willing to deliver without a presentation of B/L?
The carrier can be persuaded to deliver against a letter of indemnity
Effectively a promise from the deliveree that he will cover the carrier in case the person who is actually entitled to take the goods shows up
To be clear, in The Erin Schulte, the parties agreed that the B/L was spent for the purpose of this judgement, but it was not (goods were not delivered to the right person)
- What are the consequences of a B/L being spent?
o It's no longer taken to represent constructive possession
This might be a problem: there is a risk that someone like the buyer engaging in a bit of double dealing, selling physical goods to one party and B/L to another
- So if the bank sues the sub-buyer?
o Sub-buyer wins
Can the bank invoke any of the exceptions under nemo dat?
No, because spent B/L no longer qualifies as a document of title
No clear case, but Benjamin's asserts that it must be the case
- A spent bill can still transfer rights under s2(2)(a)
o "by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill"
E.g. if under the sale contract you became entitled to get the B/L, and if at that point in time, the B/L was not yet spent, you become the lawful holder even though the B/L
was subsequently spent
So long as the sale contract was entered into before the B/L became spent
What happens when the buyer refuses to pay against tender of documents, where the documents are, but the goods are not, in accordance with the contract?
- Buyer still has to pay the price, but seller is liable for any past breaches
This question is really about Gill & Duffus (one of the central cases in this course)
- Buyer had two arguments in Gill
First is a liability argument
Refusing to pay against conforming documents would normally be a repudiatory breach
But there was an earlier repudiatory breach by the seller
Does this work normally in contact? YES
You can justify your later repudiatory breach as an acceptance of their earlier repudiatory breach
Do you need to know at the time of your refusal that there was an earlier repudiatory breach?
No! (Boston Deepsea Fishing!!)
Why did this not succeed?
Because the buyer's duty to pay against documents is an independent covenant
i.e. you cannot set one party's failure to perform against YOUR failure to perform
THESE DAYS, the courts tend to work on the assumption that covenants in a contract ARE dependent
BUT NOT SO IN A CIF CONTRACT, it is common understanding that they are independent covenants
This is why Lord Diplock says that even if there weren't a certificate,
buyer couldn't set off his breach!
o Second is a damages argument
Buyer is guilty of non-acceptance
Seller is entitled to difference between contract price that they should have been paid and the market price
But what could the buyer argue?
That even if they had accepted the documents, they could still have rejected the goods for non-conformity, and then brought a claim for the price!
What does Lord Diplock say?
No, because the buyer was never in a position to reject the documents, because the seller had terminated the contract
DN: you're assessing counterfactuals, so this argument makes no sense! Because the whole point is to consider a hypothetical as if there had been no breach!
o But Lord Diplock seems to be considering the factual situation rather than the counterfactual!
So does this depart from normal contractual principles?
YES! The Glory Wealth
Teare J says you actually have to prove that you actually could have performed your end of the contract 6 If it's not clear, then why on earth should you recover for damages
Very difficult to square with normal law of contract, unless you make
Peel's distinction between events and inability to perform
Gill & Duffus is still good law! Even though Teare J in Glory Wealth tries to distinguish it based on the certificate
Peel: you probably just have to accept that its special rules for CIF contracts
What is required for conforming documents?
o 1) You actually have to be provided with the documents listed under the contract
E.g. in Gill & Duffus, this included quality of certificate
2) The documents have to say what the contract requires them to say
E.g. they were shipped, and date of shipment
3) Documents have to be genuine
The requirements for banks are different:
o Bank has to accept the document so long as they are conforming on their face (even if they are not genuine)
o UNLESS: there is fraud committed (NOT necessarily by the presenter, but by the original shipper)
NOTE: in this situation, the buyer can still sue for damages for breach of contract for shipment of non-conforming goods, notwithstanding that he cannot raise a defence against his own liability and damages for rejecting the documents
But this was not available to the buyer in Gill & Duffus because of the binding certificate
Treitel: Gill & Duffus decides that a buyer acts wrongfully in refusing to pay against conforming documents, even though the goods suffer from a defect that would justify their rejection.
o But Lord Diplock notes two exceptions in Gill & Duffus
1) Where the seller is guilty of fraud
Would only work if the seller were somehow able to tender conforming documents despite shipping non-conforming goods
2) Where the goods are fundamentally different (peas as beans)
But this would only rarely apply
If the goods are fundamentally different - usually the documents will not be genuine in the first place! So the buyer can rightfully reject them
One example by DN: if the B/L says "said to contain beans" -> and the cases are labelled beans so it's not discernible on a reasonable inspection o---
Further NOTE: there is some controversy over Lord Diplock's statement that 'it had not been contended that the shipping documents "did not upon the face of them conform to the terms of the c.i.f. contract"'
o Some have taken this to mean that a buyer must pay against documents that conform on their face
But Treitel rejects this interpretation (see his article below)7
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