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Legal qualities of straight bills of lading - a comparative study of Scandinavian and English law
Master’s thesis in Maritime law, 20 credits
Jonas Adolfsson
Johan Schelin
Spring 2006
Acknowledgements The author would like to acknowledge the following persons and their assistance towards the production of this work; Senior Lecturer Johan Schelin at the University of Uppsala, Professor Charles Debattista at the University of Southampton, Oscar Egerström at Glencore Grain B.V. and assistant attorney Johan Lindblad at Mannheimer Swartling law firm. Stockholm, August 2006.
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List of abbreviations C.I.F. – Cost, Insurance, Freight
COGSA – Carriage of Goods by Sea Act
F.O.B. – Free-On-Board
H-V-R – The Hague-Visby Rules
NJA – Nytt Juridiskt Arkiv (Supreme Court of Sweden)
PNA – Promissory Notes Act (Swedish)
SGA – Sale of Goods Act (U.K.)
SMC – Scandinavian Maritime Code
SSGA – Scandinavian Sale of Goods Act
UCC – Uniform Commercial Code (U.S.)
UNCITRAL – The United Nations Commission on International Trade Law
USC – United States Code
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Table of contents Acknowledgements..................................................................................................................... i
List of abbreviations................................................................................................................. iii
Table of contents................................................................................................................... v-vi 1. Introduction ............................................................................................................................ 1
1.1. Background .................................................................................................................... 1
1.2. Purpose............................................................................................................................ 2
1.3. Method, materials and limitations................................................................................ 2 1.3.1. Method .................................................................................................................................................. 2 1.3.2. Materials................................................................................................................................................ 3 1.3.3. Limitations ............................................................................................................................................ 3
1.4. Outline............................................................................................................................. 4
2. Different types of transport documents.................................................................................. 5
2.1. Bills of lading .................................................................................................................. 5 2.1.1. Order bills of lading .............................................................................................................................. 6 2.1.2. Straight bills of lading ........................................................................................................................... 6
2.2. Sea waybills..................................................................................................................... 7
3. Legal qualities of straight bills of lading................................................................................ 9
3.1. The creditor’s right to demand performance from the debtor and the debtor’s
right to perform..................................................................................................................... 9 3.1.1. The Scandinavian method; ‘ostensible title’ ....................................................................................... 10 3.1.2. The English method; from document of title to COGSA 1992 ........................................................... 12 3.1.3. Does the holder of a straight bill of lading have the right to demand the goods from the carrier and is
the carrier entitled to deliver?........................................................................................................................ 14 3.1.4. The Hague-Visby Rules and presentation of straight bills in English law; The Rafaela S.................. 17
3.2. To what extent is the right of the holder to demand delivery capable of being
transferred to a third party?.............................................................................................. 23 3.2.1. Transferability and assignment ........................................................................................................... 23 3.2.2. Are straight bills ‘documents of title at common law’? ...................................................................... 26
3.3. Can the holder bind the carrier to what the bill states regarding the goods, or
otherwise? ............................................................................................................................ 30 3.3.1. Binding the carrier to statements on the bill........................................................................................ 31
3.3.1.1. Negotiability in the hands of a named consignee ......................................................................... 32 3.3.1.1.1. Evidentiary value of the bill of lading and ‘Unknown-clauses”............................................ 33
3.3.1.2. Negotiability in the hands of an unnamed consignee? ................................................................. 35
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3.4. To what extent will the holder of the bill of lading risk getting beaten to delivery
by competing claimants to the goods?............................................................................... 38 3.4.1. The buyer’s protection against the seller (or his creditors) ................................................................. 38
3.4.1.1. The stoppage in transit rule .......................................................................................................... 42 3.4.1.2. Arguments for not maintaining the stoppage in transit rule ......................................................... 44
3.4.2. The buyer’s protection against other buyers of the same goods.......................................................... 49 4. Conclusions .......................................................................................................................... 52
Bibliography............................................................................................................................. 56
Table of cases ........................................................................................................................... 58
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1. Introduction 1.1. Background For several hundreds of years, the carriage of goods by sea has been the dominating
way of transporting goods around the world. Moreover, there is nothing to indicate
that this is about to change in the foreseeable future. The increased containerisation
of goods has added to the cargo carrying capacity of the world’s fleets and ships are
increasingly becoming larger and larger in size.
Of all the inventions to secure the commercial prosperity of shipping
throughout history, one of the most important is without a doubt the creation of the
bill of lading. With the birth of this document, giving merchants a piece of paper
which enabled them to sell the goods while they were in transit, to insure them
against the perils of the maritime adventure and to raise credit to finance the sale of
goods, the shipping community cemented a huge piece in securing its prosperity.
As a result of the continuous development of shipping as such, so has the
transport documents continued their separate development. The bill of lading was
distinguished as either straight or order, and the sea waybill was created to furnish
the need of less complex sales.
Together with the creation of different transport documents, the law that
governs them developed in different nations. While the above mentioned documents
are generally recognised by all legal systems, the legal status they have been afforded
is differing. The document that is the particular document of interest in this thesis,
the straight bill of lading, provides a clear example of the difficulties that has
followed from these disparities.
The essence of the problem lies in the fact that the very reason for why a
carrier would chose to issue a particular document differs from country to country. If
one adds the fact that shipping is by its very nature international in character,
difficulties are likely to follow. In Scandinavia, carriers are likely to issue a straight
bill of lading if they wish to have the protection afforded to them by bills of lading in
general, at the same time knowing that the document is unlikely to be sold further
down a string. Conversely, carriers in the U.K. will have different reasons for
wanting to issue a straight bill of lading, perhaps even including a clause stating that
the document needs not to be presented in order to obtain delivery of the goods. The
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litigation that could follow from such differences is not only expensive but also to
some extent unnecessary.
For these reasons, and others, attempts have been made to harmonise the
rules governing the carriage of goods by sea, the most important being the Hague and
Hague Visby Rules. While these have on one side contributed greatly to the
development of sea carriage during the last hundred years, they have also failed to
solve many of the problems involved. One might even argue that they have to some
extent contributed to them.
Therefore, time has now come to find a worthy successor to the Hague-Visby
Rules. For several years the work has been progressing with the UNCITRAL Draft
convention on the carriage of goods by sea. However, before the work has been
completed one is left to guess what the final results of the work will be. I shall
therefore not deal directly with the UNCITRAL draft. Instead, with the completion
of this lengthy work being imminent, this thesis can hopefully serve as a guide to the
differences that exist between Scandinavian and English law governing the carriage
of goods by sea.
1.2. Purpose The purpose of this thesis is twofold.
First, by comparing how Scandinavian and Anglo-American law treats
straight bills of lading, I shall seek to illustrate and compare the legal characteristics
of these documents and the problems that surround them.
Second, against the background of that comparison, I shall scrutinise the
differences (and similarities) to evaluate the need for unification when it comes to the
rules governing the documents used in the carriage of goods by sea.
1.3. Method, materials and limitations
1.3.1. Method
Given that this is a Master’s thesis within the Swedish legal programme, as well as
the fact that my legal knowledge only tentatively goes beyond Swedish law,
Scandinavian law shall be the basis of this thesis. The order in which matters are
dealt with, as well as the headings they are largely given, shall therefore follow the
Scandinavian pattern and terminology.
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The intention is that this shall serve a meaning in itself; given that most of the
literature written in this area is conducted by scholars trained in Anglo-American law
and concepts, it is my hope that this thesis can, thereby, also serve an illustrative
purpose. In other words, the method in use is to seek to fit the Anglo-American law
into the Scandinavian pattern, rather than the other way around.
1.3.2. Materials
In order to find out how straight bills of lading are treated in Scandinavian and
English law respectively, I shall make use of the legal literature available on the
subject. For Scandinavian law this means the major works conducted by Swedish and
Norwegian scholars, together with the relatively rare pieces of case-law that do exist.
For English law the main sources shall be the leading practitioner works and student
textbooks, and also to a greater extent than in Scandinavian law, the relevant case-
law.
Further, for both legal systems I shall seek to make the best use of what has
been written on the subject in different legal periodicals. For the very limited
references to other legal systems, such as American or Chinese law, I have used a
combination of textbooks and even the Internet.
1.3.3. Limitations
Given that the focus of this thesis is primarily to illustrate and compare how different
legal systems treat straight bills, this shall lead to major limitations. This thesis shall
in no aspect claim to give a complete presentation of the diverse and complicated
matters that are touched upon.
In general, the parts on foreign law contained in this thesis makes no claim to
be complete, but it is still my hope that it will at any rate serve to fulfil its
comparative purpose.
Further, for both Scandinavian and foreign law, great limitations have also
been deemed necessary as far as the negotiability and property aspects in this thesis
are concerned. Finally, the presentation of different types of transport documents
only goes as far as fulfilling the purpose of this thesis.
Instead, it is my intention to at all times direct the reader to the leading textbooks in
this area, thereby making it possible to seek further knowledge if desired.
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1.4. Outline I shall start by giving a general background to the different transport documents
together with a brief introduction to their legal qualities, in chapter 2. The bulk of the
thesis is to be found in chapter 3, divided into four major pieces, where I shall
compare the way Scandinavian law and English law respectively treats straight bills
of lading. I have chosen to keep this part of the thesis as a single consolidated chapter,
each of the four parts dealing with one major issue, but it is my hope that they can
also be read and understood separately. The final part of the thesis, chapter 4,
contains the conclusions and also serves as a summary of the thesis as a whole.
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2. Different types of transport documents 2.1. Bills of lading While there are many different ways in which a shipowner can engage a ship in trade,
one of the most common ways is to conclude a contract of carriage evidenced by a
bill of lading. The bill of lading is defined in Scandinavian Maritime Code1 (SMC) §
13:42 as a document which contains;
i) an acknowledgement that goods of a certain nature and quantity have been
received (the “receipt function”);
ii) a promise to transport the goods to a named destination (the “contract of carriage
function”); and
iii) a promise to deliver the goods at the destination in return for the document.
The last of these requirements, that the bill must be presented to the carrier in order
for the holder to obtain the goods, have in the literature been referred to as the
distinguishing characteristic of the bill of lading.2 It also provides the basis for the
use of bills of lading in international trade since, in effect, possession of the bill
becomes the equivalent to possession of the goods itself.
This very important characteristic that the document becomes a representative of the
goods, has by distinguished Scandinavian scholars when translated into English,
been referred to as the ‘Document of Title’ function of the bill of lading.3 As shall be
shown in this thesis, infra, 3.2.2., there are, however, great risks involved in drawing
such a conclusion. Moreover, if one is actually referring to a ‘document of title at
common law’, then the conclusion is not only filled with risk, but also, it is submitted,
false. Therefore, the fact that all bills of lading in Scandinavian law must be
presented to obtain delivery, shall in this thesis be referred to as the ‘presentation
rule’.
Scandinavian law further distinguishes between order bills and straight
(“rekta”) bills. These shall be dealt with separately.
1 “Sjölagen” (1994:1009). 2 Inledning till Transporträtten, Grönfors, Kurt, 2nd ed., 1989, p. 85 (herein after; Grönfors), and Introduction to Maritime law, Falkanger, Thor, Bull, Hans Jacob and Brautaset, Lasse, 1st ed., 1998, p. 272 et seq. (herein after; Falkanger/Bull). 3 Falkanger/Bull, p. 272.
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2.1.1. Order bills of lading
The order bill of lading originated in sea transport because the voyages were
normally lengthy, and invariably slow.4 The owners of the cargo therefore needed a
document which enabled them to raise credit for an international sale or to take
advantage of an opportunity to sell the goods while in transit. In connection with the
trade of certain goods routinely sold in transit such as oil or grain, order bills are,
therefore, the standard document.
Order bills are the ultimate instruments for the general sale of cargo. As shall
be shown below, order bills are freely transferable through endorsement and delivery
of the document itself, and the transferee can to a great extent bind the carrier to what
the bill states.
2.1.2. Straight bills of lading
The straight bill of lading, on the other hand, is intended for use when goods are sold
to a named person, or when not connected with any sale at all.5 Under Scandinavian
law, that does not prevent the holder from assigning it to others, but the effects of
that assignment is differing in various respects from those of a transfer of an order
bill. In other words, the type of bill of lading determines the way of its transfer, but it
does neither affect its character as a bill of lading, nor the requirement for its
production in exchange for the goods. As shall be further developed below, this is
not a view held by all legal systems, in particular the English.6
Further, given that straight bills are capable of being assigned, as well as the
fact that they are subject to the presentation rule, they could very well function as
security under a letter of credit sale.
The straight bill is made out to a named person as the consignee, but that
does not suffice to make it straight. Scandinavian law presumes bills of lading to be
order bills unless they bear an express clause that they are straight, such as ‘not to
order’, or similar.7
4 For a more thorough historical introduction to bills of lading and their functions, see Carriage of Goods by Sea, Wilson, John F., 5th ed., 2004, p. 115 et seq. 5 Legal Qualities of Transport Documents, Tiberg, Hugo, Tul. L. Rev. 1998 1, p. 27 (herein after; Tiberg, Legal Qualities). 6 Infra, 3. 7 SMC § 13:42.
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The same appears to be the position under U.S. law, where USC, Title 49, Ch.
801 (Ch. 801), § 80103 (b) provides that outward bills made out to a named person is
a straight bill, but that they have to bear a statement that they are ‘nonnegotiable’, §
80103 (b)(2).
English law, on the other hand, differs from both Scandinavian and U.S. law
in this respect; if a bill is not an order bill, i.e. bearing the words ‘to order’, or similar,
it is straight.
2.2. Sea waybills The waybill is a document that originates from the carriage of goods by road or air.8
However, the increased containerisation of goods carried by sea and the fact that sea
transports have become substantially quicker, as well as the fact that many of today’s
shipment sales include transport by several modes, has lead to an increased use of
what is called a sea waybill. The SMC § 13:58 defines a sea waybill as a document
which:
i) is a contract of carriage;
ii) contains an acknowledgement that the goods have been received; and
iii) contains an undertaking by the carrier to deliver the goods to the consignee
named in the document.
While both items i) and ii) are characteristics that sea waybills share with bills of
lading, there is a substantial difference as far as point iii) is concerned. Indeed, the
main difference between bills of lading and sea waybills is that while the former
needs to be presented in order to obtain delivery, the latter entitles the consignee to
delivery as long as he can prove that he is the person named as such in the waybill.9
Further, as with straight bills of lading, sea waybills can only be assigned.10 The
reason for this difference between the sea waybill and the straight bill of lading on
the one hand, and the order bill of lading on the other hand, is the general distinction
made in Scandinavian law between documents intended for negotiation (the order
document) or not (the recta document).
8 Grönfors, p. 89. 9 Falkanger/Bull, p. 355. 10 Tiberg, Legal Qualities, p. 38.
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While it is clear that a sea waybill is intended for use when the goods are not
generally sold in transit, the question whether a sea waybill or a straight bill of lading
is used, will generally be determined by the custom of the trade.11
The main rationale for choosing to issue a straight bill of lading rather than a
sea waybill is that, at least in Scandinavian law, the straight bill of lading is equated
with the order bill of lading in important aspects, while the sea waybill is seen as a
distinct type of document governed by different rules.
In certain trades and in certain areas, carriers will issue a sea waybill as a
matter of course, leaving the shipper in practice with little possibilities to object.
Noteworthy is, however, that the SMC provides that the fact that a sea waybill has
been issued pursuant to § 13:58, does not preclude the shipper from demanding a bill
of lading according to § 13:44.
11 Falkanger/Bull, p. 356.
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3. Legal qualities of straight bills of lading While in principle many different characteristics of a document could be ascribed to
its ‘legal qualities’, when applied to bills of lading in particular a selected few
deserves special attention. This discussion, presented in the form of questions, is
based upon the basic expectations that the people involved in the daily trade of
straight bills of lading have upon the document, i.e. what functions they expect the
document to perform.
Therefore, the questions dealt with in this chapter, as well as the order in
which they are presented, can be outlined as follows:
i) Does the holder of a bill of lading have the right to demand the goods from the
carrier and is the carrier entitled to deliver to the holder?
ii) To what extent is the right of the holder to demand delivery capable of being
transferred to a third party?
iii) Can the holder bind the carrier to what the bill states regarding the goods, or
otherwise?
iv) To what extent will the holder of the bill of lading risk getting beaten to delivery
by competing claimants to the goods, in the case of straight bills primarily;
a) the seller, or;
b) another buyer of the same goods?
3.1. The creditor’s right to demand performance from the
debtor and the debtor’s right to perform Given the inherent nature of the bill of lading as a transport document used in the
carriage of goods by sea, the most important right it can give its holder, is the right to
demand delivery. In fact, without this fundamental right, the holder becomes in many
aspects powerless and generally excluded from the legal sphere of interest. The
circumstances under which the holder of a bill of lading could in fact demand the
goods from the carrier become, therefore, of absolutely crucial importance.
The somewhat lengthy heading that has been given this section of the thesis
is motivated by the great importance that lies in establishing to whom the carrier
could perform without at the same time opening himself up to liability for wrongful
delivery. As we shall see below, the way in which the straight bill of lading solves
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this situation, the so-called presentation rule, is under Scandinavian law the main
incentive for using straight bills of lading as opposed to sea waybills.
Under Scandinavian law, title to goods covered by a bill of lading is governed by the
same principles as for promissory notes in general. Therefore, a presentation of the
rules governing the right to demand delivery of goods covered by a bill of lading,
must start with an introduction into the general law of these documents.
3.1.1. The Scandinavian method; ‘ostensible title’
In any discussion regarding the creditor’s right to demand performance from the
debtor, using Scandinavian law as its basis, a distinction needs to be made at the
outset. In Scandinavian law one distinguishes between ‘substantive title’ and
‘ostensible title’ (“legitimation”).12 This distinction rests on the idea that there is a
difference between having substantive title and where it merely appears that one has
such title.13 The latter, the apparent title, is commonly referred to as ostensible title.
There are two different types of ‘legitimation’ encapsulated in the ostensible title
concept.
‘Active ostensible title’ (“aktiv legitimation”) is concerned with the
creditor’s right to demand performance from the debtor when the performance is
due.14 If the debtor refuses to perform, even though the creditor’s active ostensible
title has been established, the debtor will be liable for the possible delay. In practice,
the important question from the debtor’s point of view is, therefore, what type of
evidence the debtor must accept as establishing active ostensible title. Further, the
consequence of the active ostensible is that if such title can in fact be established, the
debtor must be allowed to claim that fact in order to protect himself against a
competing pretender’s possible claim for misdelivery. The creditor, to whom the
debtor can discharge his obligations with such effect, is said to possess ‘passive
ostensible title’ (“passiv legitimation”).15
The general rule in Scandinavian law is that only the initial creditor, or he
who can through one or more purchases derive his right from the initial creditor, will
12 Skuldebrev, växel och check, 7th ed., Tiberg, Hugo and Lennhammer, Dan, 7th ed. 1995 (herein after; Tiberg/Lennhammer), p. 40 et seq., and Tiberg, Legal Qualities, p. 7 et seq. 13 Tiberg, Legal Qualities, p. 40. 14 Ibid. 15 Ibid.
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be allowed to claim from the debtor.16 If the creditor succeeds in this task, he will
have established ‘material ostensible title’ (“materiell legitimation”).17 Obviously,
the rules on ostensible will become increasingly important for the case where the
initial creditor has transferred his claim. Consequently, most of the rules specifying
the general rule described above, are concerned with when the debtor can discharge
his obligations in such a case. Given that straight bills of lading are not intended for
transfer, such rules will in general not be highlighted in the case of these documents;
the consignee will invariably be named on the bill. The obvious pretenders in the
case of straight bills of lading conflict would instead typically be the unpaid
seller/consignor and the buyer/consignee.
It will for present purposes suffice to conclude that according to the general
rule, the debtor can discharge his obligations by performing against the original
creditor, as long as he does this in good faith.18 Consequently, if the creditor notifies
the debtor of the transfer of a claim (“denuntiation”), the debtor can no longer claim
good faith in his protection.
The general rule of good faith is in a number of situations qualified, so that in
certain situations the debtor will not be protected even by his good faith. Forgery of a
transfer is an example of a situation where the debtor is not protected.19 Where the
debtor simply is mistaken regarding the identity of the creditor is another. 20
Consequently, he will in such cases risk being forced to perform twice. In order to
protect himself against that situation, the debtor could insist on including a
‘presentationclause’ in the document. The effect of him so doing, is that he will be
entitled to perform to the person in possession of the document, irrespective of
whether that creditor is the correct one or not, as long as he executes reasonable care
when deciding whether the holder is the true creditor.21
The presentation of the document might, however, be of importance to the
debtor for other reasons than that of ostensible title.22 One could easily contemplate
the situation where it is in his interest to ‘render the document harmless’ or neutralise
16 ”Lag (1936:81) om skuldebrev”, § 13. 17 Tiberg/Lennhammer, p. 41 et seq. 18 PNA § 29. The section is according to its wording only applicable to payment, but it has been held to be analogously applicable; Tiberg/Lennhammer, p. 43, and the citations there made. 19 PNA § 30. 20 Ibid. Cf. Tiberg/Lennhammer, p. 46. 21 PNA § 33. For straight bills, such reasonable care would include checking the identity of the presenter; Tiberg/Lennhammer, p. 69. 22 Tiberg/Lennhammer, p. 71.
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it. The creditor could for example be a large corporation and might therefore
otherwise have difficulties keeping track of outstanding obligations. The solution for
the creditor in such a situation is to include in the document a ‘presentationclause’,
making the presentation of the document a condition for his performance. However,
the effect of creating such a ‘presentationdocument’ is not that the debtor must
require presentation of the document; it merely gives him the option of doing so.23
He is perfectly entitled to perform his obligations on the basis of the rules on material
ostensible title.
This method of creating a ‘presentationdocument’, the presentation of which
the debtor is entitled but not required to make his performance conditional upon, has
by the Supreme Court of Sweden been held invalid, stating that any other solution
would be irreconcilable with the underlying concepts of the PNA.24 However, the
Court at the same time indicated that a document the presentation of which is crucial
for performance would be valid.25 Further, as shall be developed below, such a
requirement could also be required through statute.26
The mandatory performance by the debtor on presentation of the document,
is in English law closely connected to a document being a ‘document of title at
common law’. 27 According to Scandinavian law, however, such documents are
distinctively referred to as ‘value papers’ (“värdepapper i teknisk mening”).28 For
these types of documents, the crucial factors will be the transfer and the continuous
possession of the document. Such pure value papers are very scarce in practice, but
one example with importance for the following discussion shall be mentioned: the
straight bill of lading.29
3.1.2. The English method; from document of title to COGSA 1992
Under English law, the question whether a particular claimant had the right to
demand delivery depended historically on whether he had a ‘document of title at
common law’, making him the bailor with constructive possession of the goods.30
23 Tiberg/Lennhammer, p. 72. 24 NJA 1961 p. 192, in particular p. 203. 25 Tiberg/Lennhammer, p. 73. 26 Cf., infra, 3.1.3. 27 Cf., infra, 3.2. 28 Tiberg/Lennhammer, p. 73. 29 Ibid., p. 74. 30 The Sale of Goods Carried by Sea, Debattista, Charles, 2nd ed., 1998 (herein after; Debattista), par. 2-07. Cf., infra, 3.2.
13
Only if he was holding such a document could he legitimately demand the goods
from the carrier. Conversely, only then could the carrier surrender the goods without
risk being sued by others for misdelivery. Statute law was of little importance to this
issue; the Bills of Lading Act 1855 dealt primarily with the privity of contract
problem and not the issue of demanding delivery. Instead this was left to the
common law to solve, and in line with what shall be further developed under 3.2.,
below, the solution was that only bills of lading of a certain type were recognised as
‘documents of title at common law’.
As mentioned, the now repealed Bills of Lading Act 1855 was primarily
designed to deal with privity of contract. The doctrine prevents two parties to create
contractual benefits for a third party.31 For bills of lading, this creates problems
where the shipper has the right to claim delivery of the goods from the carrier, but he
wishes to transfer that right to someone else as a consequence of the goods being
sold. Even though the target of the Carriage of Goods by Sea Act 1992 (COGSA
1992), the successor of the Bills of Lading Act 1855, was equally to solve this
problem, it has somewhat more wide-going effects.32 While the old Act was based
on passing of the property in the goods, COGSA 1992 lacks this connection. Instead,
COGSA 1992 creates through statute a contract of carriage between the carrier and
the holder of bills of lading and certain other documents recognised by the Act.
Therefore, while under the Bills of Lading Act 1855 in principal only the buyer could
benefit from its provisions, under COGSA 1992 a far wider number of parties are
granted rights in relation to the carrier.
The most basic right so created must be the right to demand delivery. 33
Therefore, while other issues still turn on the question whether one is holding a
document of title at common law, the issue of demanding the goods from the carrier
is no longer so dependant. Instead, that issue now turns on whether the claimant can
describe himself as one of the parties benefited by the COGSA 1992. In effect, the
old common law rules on bailment and constructive possession of the goods, have in
the form of COGSA 1992 been superseded by statute.34
31 The Law of Contract, Treitel, Günther, 11th ed., 2003, p. 580. 32 Debattista, par. 2-08. 33 COGSA 1992 sec. 2(1) speaks of the transferee acquiring “all rights of suit under the contract of carriage”. Debattista argues that this, for the reasons explained, include the right to demand delivery; Debattista, par. 2-08. However, for a different view; cf. Benjamin’s Sale of Goods, Guest, A. G., general editor, 6th ed., 2002 (herein after; Benjamin), par. 18-007. 34 However, if the receiver of goods if for some reason unable to take benefit from COGSA 1992, he could still be able to claim delivery from the carrier based on an implied contract, based on the case Brandt v. Liverpool
14
3.1.3. Does the holder of a straight bill of lading have the right to
demand the goods from the carrier and is the carrier entitled to
deliver?
As far as Scandinavian law is concerned, the person that has ostensible title is clearly
the one named as consignee in the bill of lading.35 In Scandinavian law the rules
concerning bills of lading have been construed as rules on ostensible title. Thus, the
consignee can enforce the document against the carrier by handing it over, the carrier
simultaneously being relieved from further obligations on his part (active and passive
ostensible title). The consignee and holder of the bill is, therefore, the one entitled to
demand delivery from the carrier.
From the carrier’s perspective, the rules can also be dealt with as a question
of good-faith. He is obliged to deliver the goods to the entitled recipient. If he,
however, surrenders the goods to someone not so entitled, he is still protected if that
someone possessed ostensible authority and the carrier was in good-faith. Conversely,
he can never perform to a person in bad-faith, despite the ostensible title of that
person. This issue of good-faith is of particular importance in another discussion,
namely that regarding the relationship between SMC § 13:52 and the rules of the
sellers stoppage in transit under the Scandinavian Sale of Goods Act36 (SSGA) 61 §
2p and SMC § 13:57. The potential conflict this relationship holds shall be further
developed under 3.4., below.
Internationally, the general view, even though the debate is still on-going, is
that delivery presupposes that the carrier only delivers the goods against presentation
of the bill of lading. In Scandinavian law, the issue of presentation has for some time
been settled. The SMC prescribes, and has since the SMC of 1891 prescribed, that all
bills of lading are ‘presentation documents’.37 Given this fact, not only order bills,
but also straight bills of lading have by scholars been called “documents of title in
Scandinavian law”38. However, as shall be further developed under 3.2.2., below, it
is questionable whether the requirement of presentation alone is enough to make
straight bills documents of title at common law.
[1924] 1 K.B. 575. In effect, therefore, the common law rules may still be of great importance despite the enactment of COGSA 1992; cf. Carver Carriage by Sea, Colinvaux, Raoul, editor, 13th ed., 1982 (herein after; Carver), par. 7-009 et seq. 35 Tiberg, Legal Qualities, p. 31. 36 “Köplag (1990:931)” 37 § 13:52 (§ 156 under the 1891 Act). 38 Tiberg, Legal Qualities, p. 32.
15
Case law makes it clear that the carrier will face serious liability if he delivers the
goods without presentation of the bill; neither the package and unit limitation rules,39
nor the rules on Global Limitation will assist the carrier in such a situation.40 The
rationale for these rules, rules that may in some cases seem more than harsh for the
carrier, is undoubtedly the fear of undermining the role of the bill of lading as
security in financing shipment sales. Despite that, there are a few examples of cases
where Scandinavian law has in fact approved the delivery without presentation, but
these cases have concerned very special factual circumstances.41
In particular, the fact that the bill has been lost or stolen is not enough to
justify delivery without presentation of the bill. 42 Therefore, Scandinavian law
instead gives the creditor the possibility to nullify the document in such cases. This is
regulated in the Mortification Act43, confirmed especially for bills of lading in the
SMC § 13:55. According to the section, the consignee may, after the document has
been properly mortified, claim the goods from the carrier if at the same time security
is given covering any liabilities the carrier may face as a result of the goods being
surrendered.
Further, with straight bills of lading the risk that the consignee will be beaten
to delivery by other bill of lading holders is insignificant. Given that straight bills
will invariably name the consignee, i.e. the person entitled to delivery, any other
pretender would find it difficult to establish active ostensible title. If, however, the
carrier finds himself uncertain regarding which of the bill of lading holders are
entitled to delivery, SMC §13:52 provides that the carrier should store the goods and
let the pretenders solve their dispute as to better right to the goods.44
Under English law, as was explained above, the question whether the holder
of a certain document is entitled to demand delivery from the carrier, depends on
whether that document is recognised by COGSA 1992. When it comes to bills of
lading, which are the documents of interest in this thesis, COGSA 1992 gives “the
39 The Leikvoll ND 1957 p. 91. 40 The Hoegh Mouette ND 1954 p. 373, and, Liability for wrongful delivery, Tiberg, Hugo, in Cargo liability in Future Maritime Carriage, 1998, p. 327. 41 In particular, those cases have concerned where delivery without presentation is allowed by the law applicable at the place of discharge; see Stoppage in Transit (“Stoppningsrätt under godstransport”), Johansson, Svante, 2001, p. 312 et seq. (herein after; Johansson), and The Fayroz III ND 1988 p. 30. Such exceptions has also been recognised by Clarke J. to exist in English law; The Sormovskiy 3068 [1994] 2 Lloyd’s Rep 266, but was doubted by Thomas J. in a later case; East West v. DKBS [2002] 2 Lloyd’s Rep. 182. 42 Tiberg/Lennhammer, p. 72. 43 “Lagen (1927:85) om dödande av förkommen handling” 44 The applicability of this rule to straight bills of lading, will be further discussed under 3.4.1.1., infra.
16
lawful holder” 45 of such a document all “rights of suit under the contract of
carriage” 46 . While “rights of suit” is not defined in the Act itself, for reasons
explained above, this must include the right to demand delivery from the carrier.47
While the Act fails to define what is meant by “rights of suit”, it does
provide a definition of “lawful holder”48. More importantly to this discussion, it
further limits the number of documents it regards as bills of lading. Sec. 1 (2) (a) of
the Act stipulates that it does not regard as a bill of lading “a document which is
incapable of transfer either by endorsement or, as a bearer bill, by delivery without
indorsement.”
The upshot of the section is that under COGSA 1992, straight bills of lading,
a document which is not capable of transfer by endorsement, are not regarded as bills
of lading at all. However, does this mean that persons named as consignees on such
documents would not be entitled to delivery from the carrier? Clearly, this was not
what the Law Commission intended. Instead they were of the opinion that “[W]here
the bill of lading is not transferable, it will undoubtedly fall within the definition of
sea waybill to be found in [Sec. 1 (3) of the Act]”.49 According to the definition
referred to, a sea waybill is a document which is not a bill of lading, but which
evidences the receipt of goods and the terms of a contract of carriage, and which
“identifies the person to whom delivery of the goods is to be made by the carrier in
accordance with that contract”. Further, sec. 5(3) widens the definition of a sea
waybill to include a document “which allows for the identity of the person [to whom
the goods are deliverable] to be varied, in accordance with the terms of the
document, after its issue”.
As far as delivery is concerned, the holder of a straight bill of lading or a sea
waybill, is through sec. 2(1) (b) of COGSA 1992 entitled to demand delivery of the
goods from the carrier. The section reads that “the person to whom delivery of the
goods to which a sea waybill relates is to be made by the carrier in accordance with
that contract...shall…have transferred to…him all right of suit under the contract of
carriage.” As with bills of lading, such “rights of suit” must include the right to
demand delivery.
45 Sec. 2(1)(a). 46 Sec. 2(1). 47 Supra, 3.1.2, fn. 33. 48 Sec. 5(2). 49 Rights of suit in respect of Carriage of Goods by Sea, The Law Commission for England and Wales, No. 196, par. 2.50.
17
Therefore, the person named as the consignee on a straight bill of lading has
the right to demand performance from the carrier according to COGSA 1992.
However, this is not so because the document is a bill of lading; according to
COGSA 1992 it clearly is not. Instead, this is so because COGSA 1992 regards
straight bills of lading to be sea waybills.
This fact has three important consequences. The first relates to the extinction
of the shipper’s rights of suit and shall be dealt with under 3.4., below. The second
and third relates to the applicability of the Hague-Visby Rules (H-V-R) to straight
bills of lading and the question whether such a document must be presented to the
carrier in order to obtain delivery of the goods. These latter two, issues that have both
been subject to a history of debate in the English legal literature, require special
consideration and shall be dealt with presently.
3.1.4. The Hague-Visby Rules and presentation of straight bills in
English law; The Rafaela S
Given the fact that COGSA 1992 regards straight bills as sea waybills, questions
were immediately raised as to the applicability of the H-V-R to such bills, as well as
whether such documents need to be presented to the carrier in order to obtain
delivery.50
The latter issue, that of presentation, has for a long time been settled in the
positive for bills of lading.51 However, the fact that straight bills are regarded as sea
waybills by COGSA 1992, would seem to indicate that they do not need to be
presented. For sea waybills, the lack of a requirement as to presentation has in the
literature been described as the main advantage of using such documents.52 Does this
apply equally to straight bills?
Money turns on this issue, since English law, as we saw does Scandinavian
law, historically treats the carrier who delivers the goods without presentation of a
bill of lading particularly harsh. Under English law, not only is such an act
considered a breach of contract,53 it further deprives the carrier of the right to take
50 Cf., e.g., Debattista, par. 2-26 et seq., and Benjamin, par. 18-059. 51 London Joint Stock Bank Ltd v. British Amsterdam Maritime Agency Ltd (1910) 11 Asp MLC 571; see also Scrutton on Charterparties and Bills of Lading, Boyd, Stewart C., Burrows, Andrew S. and Foxton, David, 20th ed., 1996 (herein after; Scrutton), p. 291. 52 Debattista, par. 2-26. 53 The Sormovskiy 3068 [1994] 2 Lloyd’s Rep. 266.
18
advantage of any contractual exclusions or limitations that would otherwise be
available to him. 54 In particular, this includes the package and unit limitation
provided by the H-V-R.
The former issue, that of the applicability of the H-V-R, has been raised due
to the fact that the Carriage of Goods by Sea Act (COGSA 1971), the act giving
effect to the H-V-R in the U.K., expressly stipulates in art. I (b) that it is only
applicable where the document is “a bill of lading or any similar document of title”.
In other words, the Rules are not applicable to sea waybills.55 The question that
follows is where this leaves straight bills of lading, a document which at least in
certain parts of English law is regarded as a sea waybill. For Scandinavian law no
such problems have arisen due to the fact that the Rules have been incorporated
directly into the SMC.56
For carriers this issue is also of great importance, given that the rules give
them the benefit of both exclusion and limitation of any possible liability.
Considering that the application of U.K. COGSA 1971 is dependant on the relevant
document being “a bill of lading or any similar document of title” according to art. I
(b) of the Rules, it is perhaps not surprising that both of these issues, applicability as
well as presentation, came up for consideration in the same case; The Rafaela S57.
The case concerned the carriage of four containers of printing equipment
from Durban to Boston via Felixstowe. On the first leg of the journey, the containers
were carried on board The Rosemary and the voyage was covered by a straight bill of
lading that had been issued in Durban. In Felixstowe the cargo was unloaded and
shipped aboard The Rafaela S bound for Boston. The buyers alleged that the cargo
was damaged beyond economic repair during the Felixstowe-Boston voyage. A fresh
bill of lading was not issued in respect of the Felixstowe-Boston leg of the journey.
This became a source of dispute during the arbitration and also the Court proceedings
that followed in the High Court and The Court of Appeal. However, when the case
reached the House of Lords the parties had agreed that if any fresh bill of lading had
54 Sze Hai Tong Bank v. Rambler Cycle Co [1959] A.C. 576. It would appear that the carrier is not even protected if he delivers against a fraudulent bill of lading; Motis Exports v. Dampskibselskabet [2000] 1 Lloyd’s Rep. 211. 55 Carver, par. 8-001. 56 SMC §§ 13:46-50 makes it clear that the rules are equally applicable irrespective of whether the document at hand is a straight or order bill of lading. 57 [2005] 1 Lloyd’s Rep. 347 (HL).
19
been issued, it would have been in the same terms as that issued in respect of the
carriage from Durban to Felixstowe.
The only issue on appeal before the House of Lords in The Rafaela S was,
therefore, whether the U.K. COGSA 1992 or the U.S. COGSA applied to straight
bills issued covering a voyage from England to the U.S. Important to mention is that
the bill of lading issued in the case contained a presentation clause58, stating that one
of the bills had to be surrendered in order to take delivery of the goods.
The background to the dispute was the fact that the limitation rules contained in the
U.K. COGSA 1971 are much less favourable to carriers than the ones stipulated by
the U.S. equivalent, and therefore the carrier in The Rafaela S, MSC, argued that the
U.K. COGSA 1971 was not applicable to straight bills. The buyers, conversely
arguing that they did in fact apply, therefore faced the seemingly difficult challenge
of arguing that straight bills are a “bill of lading or any similar document of title”.
Perhaps somewhat surprisingly, the House of Lords decided in favour of the
buyers and held that a straight bill of lading was to be viewed as a “bill of lading or
similar document of title” within the meaning of COGSA 1971. The reason for this
was, although as shall be developed further below it was arguably not decisive, that
the bill contained a presentation clause which was given effect to by the Court. Their
Lordships therefore upheld the decision of the Court of Appeal, 59 especially
commemorating the judgement of Rix L.J., calling it “comprehensive and erudite”60.
The further reasons for their Lordships’ judgement can be summarised as follows.
Firstly, while the travaux preparatoires were inconclusive, the draftsmen of
the Hague Rules could not have been unaware of the use of straight bills at the time
of drafting.61 Therefore, if they had wanted the Rules not to apply to straight bills,
they could have made express reservations to that effect. Moreover, there was no
reasonable explanation why, e.g. a C.I.F. seller would have less need for the basic
protection afforded to him by the Rules, when he was using a straight bill instead of
an order bill.62
58 The clause was a so-called ’attestation clause’. For the sake of consistency in this thesis, it shall, however, be referred to as a ’presentation clause’. 59 [2003] 2 Lloyd’s Rep. 113 (CA). 60 [2005] 1 Lloyd’s Rep. 347, per Lord Bingham, par. 3. 61 Ibid., per Lord Steyn, par. 43. 62 Ibid., per Lord Steyn, par. 47, and Lord Rodger, par. 70.
20
Secondly, the words of art. I (b) were words of inclusion rather than
exclusion.63 Their Lordships therefore gave the article a wide meaning, so as to
expand rather than reduce the number of documents that the Rules are applicable to.
The adding of the words “or any similar document of title” was clearly an attempt to
stop carriers from avoiding the application of the Rules by using a document which,
while fulfilling the same functions, was not technically a bill of lading. In particular,
the carrier’s attempt to treat those words as having a restrictive effect not only
involved a distortion of the plain language, “[I]t also reveals a preoccupation with
notions of domestic law regarding documents of title which ought not to govern the
interpretation of an international maritime convention.”64
Thirdly, their Lordships further considered that in practice a straight bill of
lading which expressly requires presentation for delivery, was distinct from a sea
waybill.65 In the hands of the named consignee, the straight bill was his document of
title. On the other hand, a sea waybill was never a document of title. Further
differences between the documents included that a straight bill of lading contains the
standard terms of the carrier on the reverse side of the document but a sea waybill is
blank, and that straight bills of lading are invariably issued in sets of three while
waybills are not. In the words of Lord Steyn, “[E]xcept for the fact that a straight
bill of lading is only transferable to a named consignee and not generally, a straight
bill of lading shares all the principal characteristics of a bill of lading as already
described.”66
Finally, their Lordships were not impressed by the carrier’s argument based
on COGSA 1992, which as we have seen treats straight bills as sea waybills. In their
view, the question before them was not whether a straight bill is a document of title
at common law, but merely whether it is “a bill of lading or any similar document of
title” for the purposes of COGSA 1971. Therefore, they did not consider COGSA
1992 capable of altering the meaning of COGSA 1971, the latter giving effect to an
international convention. Moreover, this was particularly so since sec. 5(5) of
COGSA 1992 specifically provides that the Act should not affect the H-V-R.67
The judgement, stating that the H-V-R are applicable to straight bills, is for
commercial reasons, it is submitted, correct. There is no reason to treat a document
63 [2005] 1 Lloyd’s Rep. 347, per Lord Steyn, par. 44. 64 Ibid. 65 Ibid., per Lord Steyn, par. 46. 66 Ibid. 67 Ibid., per Lord Bingham, par. 22, and Lord Steyn, par. 50.
21
that “looks and smells”68 like a bill of lading as anything but a bill of lading. For the
Scandinavian lawyer in particular, the idea to treat straight bills as sea waybills in
lieu of the bills of lading that they are, seems not only odd but wrong. Further, to
give effect to an express clause stipulating that the bill must be presented in order to
obtain delivery of the goods, seems both logical and correct.69
Given that their Lordships only dealt with the question where the straight bill of
lading contains a clause requiring it to be presented, the question whether this would
be required even without such a clause was, strictly speaking, not decided. However,
this neither stopped Lord Bingham70 and Lord Steyn71 in the House of Lords, nor L.J.
Rix72 in the Court of Appeal, to hold that even without such a clause, they would
require presentation in the case of straight bills.
If straight bills would have to be presented to obtain delivery, that would
mean that English and American law would have differing rules on this matter. Ch.
801, § 80110 (b) states that the carrier is entitled to deliver the goods to the
“consignee named in a nonnegotiable bill”. However, is seems likely that under U.S.
law the Courts would uphold a clause in the bill as to presentation, regardless of the
document being labelled as ‘nonnegotiable’, or not.73
Among Asian legal systems, there seems to be conflicting views as to the
presentation issue. Under Chinese law, is has been held by the Supreme Court that a
carrier is not liable for misdelivery, when he delivers the goods without presentation
of the bill.74 The Courts in Hong Kong appear to have followed the Chinese route,75
while the Courts in Singapore, in a case dealt with in some detail by the House of
Lords in The Rafaela S, has reached the opposite conclusion.76
The fact that such distinguished judges as Lord Bingham, Lord Steyn and L.J.
Rix indicated that a straight bill would have to be presented even in the absence of a
clause to that effect, raises several questions regarding the question of what defines a
document of title. Is presentation really enough to say that a document is a document
68 Straight bills come in from the cold – or do they?, Debattista, Charles, Lloyd’s List, 23/03/03. 69 Lords ruling sets out stance on straight bill presentation, Debattista, Charles and, Kaiser, Ingolf, Lloyd’s List, 05/03/02. 70 [2005] 1 Lloyd’s Rep. 347, par. 20. 71 Ibid., par. 45. 72 [2003] 2 Lloyd’s Rep. 113, par. 145. 73 Tiberg, Legal Qualities, p. 32. 74 Zim Israel Navigation Company Ltd. v. Sun Hing Shipping Co. Ltd. The Supreme People’s Court of China (2002). The case is available at http://www.ccmt.org.cn/english/case/show.php?sld=2324 last visited: 12/07/2006. 75 The Brij [2001] 1 Lloyd’s Rep. 131. 76 Voss v. APL Co. Pte. Limited [2002] 2 Lloyd’s Rep. 707.
22
of title? The judges seemed to indicate just that, but does this mean that straight bills
are documents of title for all purposes?
These questions shall be revisited later in this essay when the concept of a
document of title at common law is scrutinised further. Suffice it for present
purposes to conclude that The Rafaela S is clear authority for the applicability of the
H-V-R to straight bills of lading, at least when containing a presentationclause, and
that such a clause will indeed be upheld by the Courts. Until another case reaches the
Courts, presentation of a straight bill not containing such a clause, however, is not
necessary to obtain delivery, all in accordance with COGSA 1992.
23
3.2. To what extent is the right of the holder to demand delivery
capable of being transferred to a third party? We have just seen that the person named as the consignee on a straight bill of lading
will, given the fulfilment of certain requirements, be able to claim the goods from the
carrier. The logical question that follows, and which is the subject-matter of this part
of the chapter, is to what extent that right is transferable to a third party?
The issue of a document being ‘transferable’ or not, is one of immense
importance in the case of bills of lading. The fact that the right to demand the goods
from the carrier contained in a document can be transferred from one person to
another, foremost a buyer of the goods, is historically the key function of bills of
lading.
Despite this, the meaning of a document being ‘transferable’ is varying
between different legal systems. Most obvious is this difference if one compares
Anglo-American and Continental law. For reasons and with effects to be further
developed below, Continental lawyers tend to use ‘transferability’ in a wide sense,
recognising that the real question is what rights are actually being transferred,
focusing less on the actual transfer itself. Anglo-American law, on the other hand,
uses the concept ‘transferability’ in a much more narrow sense. In fact, Anglo-
American law referrers to certain documents as not being ‘transferable’ at all,
describing a document the transfer of which is without legal effects.
The reasons for these differences go back to strongly mounted basic principles in the
different legal systems. Arguing for which viewpoint is the ‘better’ one is
meaningless. The ability for lawyers to understand one another cross-borders despite
semantic differences, however, serves a highly useful purpose.
3.2.1. Transferability and assignment
To the Continental lawyer it does sound odd when the English lawyer refers to a
document as ‘non-transferable’77 . To him, this is something of a non-issue; any
77 The meaning of ‘transferability’ has in English law been complicated by the use of the term ‘negotiability’, when what one is referring to is really a document’s transferable character (See The Rafaela S [2005] 1 Lloyd’s Rep. 347 (HL), per Lord Bingham, par. 5, and per Lord Steyn, par. 37, and Kum v. Wah Tat Bank Ltd. [1971] 1 Lloyd’s Rep. 439, p. 446. Cf. Debattista, par. 3-05). Suffice it at the present to clarify that when referred to in this thesis, ‘transferability’ deals with the extent at which rights contained in certain documents, whereof the right to claim delivery from the carrier is the most important one, can be transferred from A to B without involving the carrier himself in every transfer.
24
document could be sold or pledged, straight bills of lading being no different. The
crucial question is rather what rights contained in the document are acquired by the
transferee, i.e. the effects of a transfer.
The fact of the matter is that, strictly speaking, straight bills of lading are
repeatedly being ‘transferred’, either from the consignor to the named consignee, or
further on to an unnamed consignee. An example of the latter would be where the
bill is pledged to a bank as security under a letter of credit sale. As soon as the bank
has been reimbursed for its expenses, it would then transfer the bill to the actual
consignee, the buyer, taking possession of the goods.78
The general method for achieving this transfer of creditors, in Scandinavian
law as well as in most other Continental legal systems, is through the rules on
assignment. In Scandinavia, the law recognises the assignment of claims through
several methods, including purchase.79 Therefore, there is in principal nothing to stop
the consignee, be it the bank or the seller, from assigning the bill to a purchaser of
the goods.
One important reservation as to the right to assign has to be made. While the
fact that some creditors might be less lenient as far as performance is not something
that has been recognised by the legislator,80 the focus of these rules have instead lain
upon the rule that the debtor’s position can not be worsened by the change of
creditors. A very important consequence of this rule, as shall be further developed
under 3.3., below, is that since the debtor’s situation must not be worsened, neither
can the creditor’s position be improved.81
Despite the rules on assignment, the law early on recognised the need of
merchants to have rights transferred by simpler and more expeditious means.82 In
particular, it recognised that some documents should be transferable through the
mere transfer of the document itself. Order, or running, bills were identified as the
chosen document, so that the rights enclosed in such documents are possible to pass
on to an acquirer of the goods by simply endorsing the document and handing over
its possession. Conversely, straight bills have not been given this status. Instead, such
78 For security reasons the bank would in such a case insist on being named as the consignee on the bill, with the consignee typically being named as “notify party”. 79 Tiberg/Lennhammer, p. 29. 80 Ibid., p. 30. 81 PNA § 27. C.f. Tiberg/Lennhammer, p. 30. 82 For a thorough presentation of the history of contracts of affreightment, see Fraktavtalet under etthundra år, Grönfors, Kurt, 1986.
25
documents are only transferable in the sense that they can be assigned. The legal
differences between documents that can be transferred through the simple
endorsement of the document itself, i.e. the order bill, and those that can only be
assigned, i.e. straight bills, will be further scrutinised under 3.3. and 3.4., below.
However, the distinction also raises a very practical point of concern; what
are the (practical) differences between endorsing a bill of lading, and assigning it? It
would appear, it is submitted, that the main difference lies in the issue of ostensible
title; in the case of assignment of a straight bill, the prudent advice to give is to make
sure that the carrier is notified (“denuntiation”) of the transfer of creditors. 83
Conversely, in the case of order bills, a type of document intended for transfer, no
such requirement exists.
As was indicated above, the Anglo-American concept ‘transferability’ differs
from the meaning this has been given in Continental law. While for the Continental
lawyers it is a matter of course that all documents can be transferred as such, this is
not so for their Anglo-American equivalents. For lawyers trained in those legal
systems, documents could be either ‘transferable’ or ‘non-transferable’, with the
rules on assignment being of little importance. Primarily, this difference has
historical reasons and for both English and American law, it is in the old English
common law that these reasons stand to be found.
The old common lawyers found it very difficult to think of a transfer of
something intangible, such as contractual rights. 84 Instead, it is only relatively
recently that English law has in fact recognised the transfer of a contractual benefit to
a third party, i.e. assignment. Initially through equity and later through the Law of
Property Act 1925 and the Contracts (Rights of Third Parties Act) 1999, the common
law reluctance on this matter was, in principle, done away with.
For the type of documents dealt with here, however, these developments have
been of little importance. This is so since even before the mentioned changes in
English law, the common law, as did the Continental law, recognised the mercantile
custom85 that certain rights “locked up in a document”86 could be transferred by
83 Tiberg/Lennhammer, p. 45 et seq. The fact that such an act will simultaneously have effect for the perfection of the acquirer’s title, is neither intentional nor unwanted; cf. infra, 3.4. 84 Debattista, par. 3-02. 85 Therefore, proof of a mercantile custom could increase the number of documents afforded with this status; Kum v. Wah Tat Bank Ltd. [1971] 1 Lloyd’s Rep. 439. 86 Debattista, par. 3-02.
26
mere delivery, possibly coupled with endorsement.87 The transfer of this document,
bearing explicit evidence of its transferability, gave the transferee the rights
contained in it and this without notification to the carrier, or any formal assignment.
This meant that the document could not only be transferred from consignor to
consignee, but also from the consignee and further. In this sense the document was
indeed “freely transferable” 88 . The document that had this characteristic is the
document that is commonly referred to as the document of title at common law.
American law distinguishes between ‘negotiable’ and ‘non-negotiable’ bills89
to deal with what in this thesis shall be referred to as ‘transferability’. A bill is ‘non-
negotiable’ if the bill states that the goods are to be delivered to a consignee. Further,
the endorsement of a ‘non-negotiable’ bill does not make the bill ‘negotiable’ or give
the transferee any additional right.90 According to the terminology in use here, a
straight bill cannot, therefore, be transferred but only assigned.91
3.2.2. Are straight bills ‘documents of title at common law’?
It follows from the above, that the question in English law whether a document has
the status of document of title at common law, and the question whether the
document is transferable in the sense described above, are very closely connected.
Despite this, the exact meaning of the concept ‘document of title’ is one that has for a
long time been highly disputed in the legal literature. Benjamin even goes as far as
concluding that “[T]here is no authoritative definition of ‘document of title to
goods’”92. A quick glance at the authorities confirm this view; as diverse matters as
property,93 security94 and the right of the holder to demand possession95, have all
been said to be dependant on the document being a document of title.
Defining the exact meaning of a document of title is not only close to
impossible, it would further serve no useful purpose in a thesis of this type. Suffice it
to conclude that the idea of a document being a document of title at common law is
87 Lickbarrow v. Mason (1787) 2 T.R. 63. 88 Debattista, par. 3-02. 89 USCA 49, Ch. 801, § 80103. 90 Ibid., (b). 91 Chandler, George F., III, in Transfer of Ownership in International Trade, Von Ziegler, Ronoe, Debattista and Plégat-Kerrault, editors, 1999 (herein after; Transfer of Ownership), p. 423. 92 Benjamin, par. 18-006. 93 Scrutton, art. 2. 94 CIF and FOB Contracts, Sassoon, David M., 4th ed., 1995 (herein after; Sasson) , par. 131. 95 Carver, par. 1596.
27
that it evidences some sort of constructive possession of the goods. Even if one is
limited to the English idea of this concept with its different explanations as to its
meaning, at the essence of such possession lies, it is submitted, the transfer of the
right to ask the carrier for the goods by transferring the document itself, possibly
coupled with endorsement.
Applying the above to bills of lading, only those bearing explicit evidence of
their transferability are recognised by mercantile custom as documents of title at
common law. In the case of bills of lading, such words are found in the consignee-
box on the face of the bill of lading in the shape of “Buyer or Order” or simply
“Order”. From that follows that documents that do not contain the words “Order”,
are non-transferable and therefore not documents of title. Consequently, straight bills
of lading are under English law neither recognised as transferable, nor as documents
of title at common law.96 In other words, any rights that might be contained in such
documents, foremost the right to demand delivery, are not capable of being
transferred by simple endorsement and delivery of the document.
As has been described above, The Rafaela S seemed to indicate, albeit in the
form of obiter dicta, that a requirement as to presentation is enough to say that a
document is a document of title. Indeed, in the context of COGSA 1971 their
Lordships went as far as concluding that straight bills are “any similar document of
title”. What are the implications of this conclusion? In particular, does this mean that
straight bills are documents of title for all purposes?
There are at least three reasons, it is submitted, why the label ‘document of
title’, as it was given by the House of Lords in The Rafaela S, should not at this early
point be overly extended.
Firstly, and perhaps most obviously, their Lordships themselves went to great
lengths to make it clear that the question they were concerned with was not whether a
straight bill of lading is a document of title at common law, but rather whether it is
“a bill of lading or any similar document of title” for the purpose of COGSA 1971,
and for that purpose only.97 Strictly speaking, they were therefore not clarifying the
meaning of the concept document of title at common law, at all.
Secondly, even if one would argue that the judgement ‘spills’ over into that
debate, it was the transferable character of a bill of lading which gave the order bill
96 Cf. Benjamin, par. 18-017. 97 Supra, fn. 57, per Lord Steyn, par. 44., and Lord Bingham, par. 22.
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of lading its label as a document of title at common law.98 In The Rafaela S, however,
the test for determining whether the bill was a document of title for the purposes of
the H-V-R was said to “possibly to depend on whether the consignee is obliged to
present the document”99. As has been stated in the literature, this is an entirely
different question.100 While the question dealt with in Lickbarrow v. Mason was
concerned with the transfer of property between the transferor and the transferee of
the bill, the question dealt with in The Rafaela S concerns the contractual relations
between, on the one hand the shipper or transferee, and on the other, the carrier. The
two questions are, however, undoubtedly related in that presentation appears to
follow logically from a document being transferable; the requirement as to
presentation is a method to protect the carrier against the, for him sometimes dire
consequences of the document being transferable. In other words, the rule on
presentation is a consequence of the transferability of an order bill, not the reason for
that transferability.101 Therefore, if a document does not require presentation one
could be certain that it is not a document of title. However, the opposite is not
necessarily true. To say that the requirement of presentation would automatically
make a straight bill of lading a document of title at common law, even for the
moment forgetting that The Rafaela S was strictly speaking not concerned with that
question, would mean putting the cart before the horse. As has been correctly
commented elsewhere, “[O]therwise, the number a person receives for his coat in a
cloak room would be a document of title!”102
Moreover, it becomes at the same time evident that the tendency in
Scandinavian law to refer to straight bills as “documents of title” based on the fact
that the law requires the production of the bill, is, it is submitted, an inaccurate
translation, to say the least. Of course, an alternative solution would be to argue that
‘document of title’ has been given a special meaning in Scandinavian law. However,
such a solution seems neither likely, nor particularly satisfactory.
Thirdly, the judgement does clearly not decide that straight bills of lading are
documents of title across the field of international trade law.103 For example, a C.I.F.
seller could not, save for express stipulation in his sale contract, claim that the tender
98 Supra, 3.2.1. 99 Supra, fn. 59, par. 95. 100 The legal status of straight bills of lading, Treitel, Günther, L.Q.R. 2003, 119(Oct.), p. 608. 101 Ibid. 102 The Straight bill: Do we really need it?, Pejovic, Caslav, European Transport Law, 2005, p. 314. 103 Supra, fn. 68. Cf. Incoterms, C.I.F., A8.
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of a straight bill of lading would constitute a good tender on the basis that The
Rafaela S decided that straight bills are documents of title. Further, banks using
straight bills should be advised not to feel that they have acceptable security under a
letter of credit sale, without being named as the consignee on the bill.104
For all of these reasons, the judgement in The Rafaela S should arguably be
given a limited interpretation as to the meaning of document of title, in particular not
stretching this beyond art. I (b) of COGSA 1971.
Considering the above, it also becomes evident that the argument that straight
bills are indeed transferred from the consignor to the original consignee carries little
weight in English law. It is not that straight bills are transferable in one sense and not
in another, but rather that in English law there is a factual difference between being
able to claim delivery of the goods from the carrier, and being able to pass that right
on. The latter issue is in English law dependant on whether one is holding a
document of title at common law. The former issue, as was explained above, while
previously similarly being dependant on the document being a document of title, is
since 1992 now decided by statute.105
104 A straight bill would, however, it is submitted, constitute a good tender under a letter of credit subject to the UCP 500. It would, subject to an express statement in the credit to the contrary, be admissible either because it is a “Marine/Ocean Bill of lading” (art. 23), or a “Non-Negotiable Sea Waybill” (art. 24), according to the parlance of the rules. 105 Supra, 3.1.2.
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3.3. Can the holder bind the carrier to what the bill states
regarding the goods, or otherwise? We have established that the holder of a straight bill of lading is entitled, under
certain circumstances, to demand the goods from the carrier. We have further
established that Scandinavian law allows the transfer of that right to any third party,
while under English law straight bills are not considered documents of title at
common law, and therefore regarded as non-transferable.
The question to be dealt with in this part of the chapter is, however, equally
valid irrespective of whether it is the consignee or any other third party that is
holding the bill of lading. Both of these holders would in English and Scandinavian
law respectively have the right to demand the goods from the carrier. However, even
if the holder enjoys such a right, albeit fundamental, it could in certain cases become
equally important to enjoy the right of binding the carrier to what the bill states
regarding the goods, or perhaps even the contract of carriage.
This second question, that of binding the carrier to what the bill states,
becomes primarily of importance for the case where the holder has a liability claim
against the carrier. That claim could either concern the cargo, for example the
number of containers in the case of a short delivery or cargo damage claim, or the
contract of carriage, in a short landing or deviation claim.
In practical terms, therefore, this question is of great importance in many situations.
It is in Scandinavian law traditionally referred to as a question of ‘negotiability’
(“negotiabilitet”).
When discussing the concept of negotiability, lawyers trained in different
legal systems will inevitably face difficulties in understanding one another. This is
particularly evident as far as the different meanings of this concept in English and
Scandinavian law are concerned.
The English term ‘negotiability’, as separated from ‘transferability’ above,
deals with substantive rights which can be asserted against the world, in particular
against others claiming similar proprietary rights. As shall be developed further, the
Scandinavian notion used here, refers to the consignee’s relation to the carrier
only.106
106 Tiberg, Legal Qualities, p. 6.
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3.3.1. Binding the carrier to statements on the bill
In Scandinavian law, the label negotiability is used when referring to documents, the
debtor of which looses the right to make certain reservations towards a good-faith
acquirer of the document. 107 In the general law of money instruments, such
reservations include the fact that the debtor has already performed to the initial
creditor.108
Applying this to the field of present concern, the question is whether the
acquirer of the bill can bind the carrier to what the document states, or whether the
carrier can make claims based on what was concluded, orally or otherwise, between
him and a previous holder? If the answer to the question is that the good-faith
acquirer of the document could in fact so commit the carrier, i.e. the document is
‘negotiable’, then as a consequence the acquirer would obtain a ‘better title’ than that
of his predecessor.
According to the general rules on money instruments it is order documents,
i.e. documents intended for transfer, which are negotiable.109 Therefore, clearly the
straight bill of lading is not a negotiable document in Scandinavian law. However,
special rules exist for certain types of documents, bills of lading included, which are
capable of creating at least ‘negotiability-like’ effects. For Scandinavian law, the
primary source of law for the ‘negotiability’ of straight bills of lading is the Hague-
Visby Rules.110
In English law, the question whether a consignee can bind the carrier to
statements made on the bill is dealt with by the common law doctrine of estoppel.111
Through the means of this doctrine, where the critical requirement is that a person
has paid for a document on the faith of the statements in it,112 carriers have been
107 PNA § 15; cf. Tiberg/Lennhammer, p. 84 et seq. 108 PNA § 16; cf. Tiberg/Lennhammer, p. 80. 109 Ibid. 110 Given that the intention of the H-V-R was to protect a weaker party, rather than dealing with reliance issues, it has been questioned whether the rules in the H-V-R are really to be assigned to the ‘negotiability’ label; cf. Tiberg, Legal qualities, p. 27. Be that as it may, the result is at least, it is submitted, that the Rules create ‘negotiability-like effects’. 111 However, as we saw above under, 3.2.1., U.S. law does through statute, recognise assignment of bills. Ch. 801, § 80106 further provides specifically for the effect of such assignment. According to part c) of that section, when the transferee notifies the carrier that a ‘nonnegotiable’ bill of lading has been transferred, the carrier is obligated directly to the transferee for any obligations the carrier owed to the transferor immediately before notification. However, the transfer gives little protection to the transferee. According to § 80103(b) the endorsement of a ‘nonnegotiable’ bill does not give any additional right. The transferee simply ‘simply steps into the shoes’ of the transferor, and is therefore, it is submitted, very similar to the assignment of straight bills in civil law jurisdictions; cf. supra. 112 For estoppel in general, see The law of waiver, variation and estoppel, Wilken, Sean, 2nd ed., 2002.
32
estopped from denying statements that the goods were shipped in apparent good
order and condition,113 that they were shipped under deck,114 or that they were
shipped on the date of shipment given in the bill.115
However, in the case of Grant v. Norway116, it was held that the master had
no authority to bind his principal, the shipowner, when signing a shipped bill of
lading for goods that were not in fact shipped. Consequently, given the lack of
authority, no estoppel was created for the benefit of the consignee. For him, this
meant that while he might possibly have a claim against the shipper/seller under the
contract of sale, he had no real case against the carrier. Therefore, the rule laid down
in Grant v. Norway was meet with great criticism, and its effects have been limited in
subsequent cases.117
More importantly, however, two legislative measures were taken to reverse
the ruling. These were the enactment of the H-V-R through the COGSA 1971, and
the COGSA 1992. As was explained above, COGSA 1992 is, however, not directly
applicable to straight bills. Therefore, the only measure to deal with Grant v. Norway
that requires consideration in this thesis is the COGSA 1971.
3.3.1.1. Negotiability in the hands of a named consignee
The H-V-R are, as was indicated above, the legal source of interest in this question
and this holds as true for both Scandinavian and English law. Art. III, r. 4 of the rules
stipulates that in the hands of a third party acquirer acting in good faith, the bill of
lading shall be conclusive evidence as far as the information that must be included
according to art. III, r. 3, the so-called ‘receipt-function’, is concerned. The rule is
contained in SMC § 13:49, 3 par.
Under American law, given the fact that the U.S. is only part to the Hague
Rules and not the Visby amendment which is the source of the conclusive evidence
rule, there is no codification of art. III, r. 4. in the relevant legislation. However,
according to Ch. 801, § 80113 a sort of codified estoppel is provided to the consignee
of a bill of lading. Subsection (a) § 80113, provides that “[E]xcept as provided in
this section, a common carrier issuing a bill of lading is liable for damages caused
113 Compania Naviera Vasconzada v. Churchill & Sim [1906] 1 K.B. 237. 114 The Nea Tyhi [1982] 1 Lloyd’s Rep. 606. 115 The Saudi Crown [1986] 1 Lloyd’s Rep. 261. 116 (1851) 10 C.B. 665. Grant v. Norway was followed in the U.S. by the Supreme Court in Friedlander v. Texas, etc, R. Co. 130 U.S. 416. 117 Carver, par. 2-005.
33
by nonreceipt by the carrier of any part of the goods by the date shown in the bill or
by failure of the goods to correspond with the description contained in the bill.” In
other words, if the consignee shows that the bill contains an inaccurate statement of
either the quantity of the goods, the date of shipment or a description of the goods,
then, prima facie, the carrier is liable to the consignee for his loss.
3.3.1.1.1. Evidentiary value of the bill of lading and ‘Unknown-clauses”
One very important reservation needs to be inserted regarding the conclusive
evidence rule in art. III, r. 4. As was mentioned above, the article stipulates that the
statements on the bill shall only be conclusive evidence against the carrier as far as
the description of the goods is concerned, in accordance with art. III, r. 3. By the
English courts, this has been interpreted to mean only just that, so that where the bill
contains a clause stating that “Weight, measure, quality, condition, contents and
value unknown”118, or something similar,119 this negates other statements made in
the bill. In other words, since the bill does not really contain a statement by the
carrier of anything at all according to art. III, r. 3, there is nothing to bind the carrier
to under art. III, r. 4.
Further, it is difficult to see, it is submitted, how art. III r. 4 could avoid the
rule laid down by the Court in Grant v. Norway, since the estoppel only operates
where a statement as to quantity has in fact been given. As has been commented in
the textbooks, “the mis-statement in the bill can scarcely be described as one as to
the quantity received.”120
For Scandinavian law, the situation appears to be similar. While the carrier is
obligated to examine the goods as such according to SMC § 13:48, the conclusive
evidence rule in § 13:49, 3 par. is only applicable if the carrier has not made an
appropriate reservation on the bill. This is something which he according to § 13:48,
1 par., second sentence is obliged to do if has reason to suspect that the information
is inaccurate. In the literature it has been commented that a clause stating ‘weight
unknown’ would indeed qualify as such an appropriate reservation.121
118 As was the clause in The Mata K [1998] 2 Lloyd’s Rep. 614, a case strictly concerned with the estoppel created by COGSA 1992, but which is equally applicable to the H-V-R estoppel; cf. Carver, par. 2-015. 119 Cf. e.g. New Chinese Antimony Co. Ltd v. Ocean Steamship Co. Ltd [1917] 2 K.B. 664, and, The Atlas [1996] 1 Lloyd’s Rep. 642. 120 Carver, par. 2-015. 121 Falkanger/Bull, p. 333.
34
Moreover, such clauses are not made void by art. III, r. 8.122 That provision only
invalidates provisions relieving or lessening the carrier’s liability under art. III. A
clause stating, for example, ‘quantity unknown’ merely deprives a bill of its
evidentiary value under art. III, r. 3, it does not lessen the carrier’s liability if this can
in fact be shown.123
A similar reservation as to the conclusive evidence rule in art. III, r. 4 of the
H-V-R, must also be inserted in connection with American law. According to Ch.
801, § 80113 (b), second par. (B), the carrier shall not be liable when the bill “is
qualified by ‘contents or condition of contents of packages unknown’, or ‘said to
contain’, ‘shipper’s weight, load and count’ or words of the same meaning”.
Therefore, it would be just as possible for the carrier to negate any statements made
in the bill, thereby avoiding any negotiability-effects.
Consequently, given that such ‘unknown-clauses’ are as good as always pre-
printed on modern type bills of lading, the rule in art. III r. 4 will as good as never be
triggered, and it is therefore open to the carrier to present evidence regarding, for
example, the quantity of goods actually shipped. In other words, the main trigger of
the Rules is being circumscribed, stopping them in practice from being used as was
intended. An alternative solution would have been, it is submitted, to give art. III, r. 8
an extensive interpretation, thereby invalidating such ‘unknown-clauses’. In other
words, the Courts should have seen through the smoke-screen laid out by such
clauses, identifying them as the liability-lessening clauses that they in practice are.
Unfortunately, however, this is not the route chosen by the Courts. Therefore, this
lameness of the Rules continues to be, it is submitted, the largest flaw of the H-V-R
mechanism. To remedy this situation, is perhaps the biggest challenge for the
draftsmen of the UNCITRAL proposal.
It has been suggested in the literature, in arguing for the unhappy effects
were different rules to apply for straight and order bills, that under the H-V-R, “the
recta bill,..., is conclusive evidence in the consignee’s hands of the correctness of the
statements involving the carrier’s corresponding duty to deliver.” 124 It appears
somewhat unclear what is meant by “duty to deliver”, but there is nothing to indicate
122 SMC § 13:4. 123 Carver, par. 2-003. For the opposite view, c.f. Marine Cargo Claims, Tetley, William, 4th ed., 2008, available at http://www.mcgill.ca/maritimelaw/mcc4th/ 124 Tiberg, Legal Qualities, p. 29.
35
that it would not include e.g. terms of shipment. With great respect for the immense
authority of the author, it is submitted that such a conclusion is false, even though as
we shall see the result is indeed that the same rules apply regardless of the document
type. As indicated above, the conclusive evidence rule only applies as far as the
receipt function is concerned and not for the carrier’s duty to deliver at large. For
example, it has elsewhere in the legal literature been pointed out that one
consequence of the limitation of art. III, r. 4, as only applying to precluding the
carrier from denying the facts that he must state under art. III, r. 3, is that he will not
be bound by statements as to the shipment, or the contract of carriage.125 There is,
e.g., nothing in the H-V-R to stop the carrier from denying the statements on the bill
as to the port of discharge, when he delivers the goods elsewhere according to a
previous agreement with the shipper. Of course, he could in such a case find himself
liable as a bailee of the goods, but that relationship is between him and the shipper,
not the receiver.126 Consequently, no rule on conclusive evidence exists in the H-V-R
to assist the consignee when it comes to the carrier’s duty to deliver at large,
regardless of the type of document.
One caveat to this conclusion must for Scandinavian law, however, be
inserted. The combined effect of SMC §§ 13:49 – 50 is in fact that statements on the
bill of lading as to whether freight has been pre-paid or not, are equally conclusive as
against the carrier. This, however, is a result of the Scandinavian accession to the
Hamburg Rules,127 and is not related to the H-V-R.
In conclusion, therefore, the result is that only in theory do straight bills of
lading have characteristics of a negotiable character. The shortcomings of the H-V-R
as a creator of such effects will in practice mean that they are generally avoided by
carriers. In other words, to a great extent the acquirer would not get an improved
situation by virtue of taking over the bill
3.3.1.2. Negotiability in the hands of an unnamed consignee?
In this situation, e.g. where a bank is named as consignee and the buyer is unnamed
on the bill itself, it could be questioned whether the H-V-R are still capable of
creating negotiability-like effects in the straight bill of lading for the buyer. However,
it is submitted that the same maritime rules as described above would also be
125 Carver, par. 2-015. 126 Ibid. 127 Art. 16, r. 4.
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applicable to the subsequent buyer-carrier relationship, upon transfer of the bill from
the bank.
The conclusive evidence rule in art. III, r. 4 benefits a good-faith
“transferee” in general, and ought therefore not be limited to a named consignee as
such. The same holds as true for Scandinavian and U.S. law; the SMC § 13:49
speaks of a “third party”, and Ch. 801, § 80113 (a) speaks of “the owner of goods
transported under a nonnegotiable bill”. Further, the same should be true under the
common law doctrine of estoppel, where the critical requirement is that a person has
paid for a document on the faith of the statements in it.
Under English and American law, since straight bills are not regarded as
transferable documents and the rules on assignment are at least in English law of
little practical importance, the relevance of the applicability these rules might,
however, seem questionable. We saw above that if a document was transferable, the
most important right thereby capable of transfer, would be the right to demand
delivery. Since straight bills are non-transferable, what good is it if the receiver of
goods could bind the carrier to statements on the bill, if he does not have the right to
demand the goods in the first place?
However, if that was true, the person that comes in possession of the goods
without being named as consignee on the bill, e.g. a receiver of goods after the seller
has redirected the goods in transit,128 would have no rights against the carrier if the
goods were damaged. Indeed, a closer look at COGSA 1992, the statute regulating
the delivery issue in English law,129 reveals, it is submitted, that this is not the
position. Sec. 2 (1) (b) of that Act states that “the person (…) who is the person to
whom delivery of the goods to which a [straight bill of lading]130 relates is to be
made by the carrier in accordance with that contract” has the right to demand the
goods from the carrier. In other words, the receiver of goods after the goods have
been redirected in transit, would, it is submitted, be the person to whom delivery of
the goods “is to be made in accordance with that contract”.
As was mentioned above, the performance defence is irrelevant where the bill
is in the hands of the named consignee. Where the bill is transferred to an unnamed
consignee, however, it does become relevant. Since straight bills are, at least in
128 Infra, 3.4.1.1. In principle, that receiver could even be the consignor/seller of the goods (!) Moreover, that person could also be a receiver having created an implied ‘Brandt v. Liverpool contract’, thereby gaining the right to demand delivery; infra, 3.1.2., fn. 34. 129 Infra, 3.1.2. 130 The section speaks of sea waybills; see infra, 3.1.3.
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Scandinavian law, fully transferable through the rules on assignment, there is a risk
of fraud. However, any such transfer would be governed by the general rules on
assignment, according to which the unnamed consignee shall not acquire an
improved situation compared to that of his transferor,131 i. e. all the carrier’s defences
available against the transferor will also be available against the transferee. In other
words, the carrier can always rely on delivery to the genuine title holder, and the
good-faith holder relying on a forged endorsement will not get a better title.132 In
English and American law, the same would in principle follow from the rule that the
assignee of a straight bill takes “subject to equities”.133
131 PNA § 27; cf., infra 3.2.1. 132 Tiberg, Legal Qualities, p. 30 et seq. 133 Ibid., fn. 115.
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3.4. To what extent will the holder of the bill of lading risk
getting beaten to delivery by competing claimants to the goods? Even though the carrier can, according to the rules on ostensible title, discharge his
duties by performing in good faith, there must at some point be decided who is in
fact the real title holder. With the carrier legitimising his performance on the basis of
the rules on ostensible, thereby exiting the equation, this is an issue between
competing creditors only.
For straight bills of lading, those competing creditors are likely to be
either; 134 i) the seller/consignor and the buyer/consignee (or in the case of
bankruptcy, the seller’s creditors) or, ii) the buyer/consignee and another buyer of the
same goods.
The former situation would typically be where the seller has not been paid by the
most likely insolvent buyer and therefore tries to claim the goods back instead. When
does property pass in goods covered by a bill of lading? The latter situation would
typically arise where the seller has sold the goods twice; while obviously only one
person could be named as consignee on the bill of lading (“tvesala”). Who would in
such a case be the person entitled to the goods?
The question in the following discussion is under what circumstances the
buyer of goods covered by a straight bill of lading, will achieve perfection of his
title; i.e. protection from either type of competing claimants described above. Each of
these issues shall be dealt with separately.
3.4.1. The buyer’s protection against the seller (or his creditors)
In Scandinavian law, while in the course of the sales transaction, the goods are
gradually transferred from the seller’s economical sphere to the buyer’s,135 a change
134 The third typical situation that could arise would be were the goods have been resold by the initial buyer (B), and that the initial buyer is in default against the initial seller (A). The question in such a case would be whether the second buyer (C) would be protected from the claim of the initial seller (A), i.e. whether he takes the goods with ‘better title’ than his predecessor. Given that straight bills are not intended for that type of transaction, the more likely scenario with such documents would be that the goods are sold twice, as described. However, it is obvious that that situation is in principle not any different from the situation of several consequent buyers down a string. Consequently, the situation would in both Scandinavian and English law be solved according to the same principles as shall be described regarding “tvesala”, infra. A fourth plausible situation is where goods are sold from A to B, carried by C, and it is C that becomes insolvent. It is at least in Scandinavian law definitely settled that C’s creditors would not be able to claim the goods on C’s account. This conclusion is strongly mounted on the principle that an agent or deputy is not legally involved in the passing of property between seller and buyer; Handbok i sakrätt, Rodhe, Knut, Stockholm, 1985, p. 229. 135 Köprätt, Håstad, Torgny, 4th ed., 1998 (herein after; Håstad, Köprätt), p. 35 et seq.
39
in possession will transfer the property in the goods. Therefore, the general rule for
perfection of title to tangibles is through transfer of the property itself (“tradition”);
the buyer is only fully protected from the seller’s creditors when the tangible has
been transferred from the seller to the buyer.136
However, when the property is in the possession of a third party, e.g. a carrier,
tradition will not be possible. Under the influence of PNA § 31 the situation is solved
by prescribing that in such a case, the seller will be protected by the notification to
the carrier of the transfer of ownership (“denuntiation”), either by the seller or the
buyer. 137 The form in which such notification needs to be given is generally
irrelevant, but it must be unequivocal and clear enough, so as to avoid
misunderstandings.138 With assignments in general, this notification procedure is the
normal way for protection from the seller’s creditors.139
For bills of lading in particular, this would mean that when A sells goods
afloat to B, B’s title to the goods are only perfected when either A or B notifies the
carrier, C, regarding the sale, or when B takes physical possession at the port of
discharge. However, great objections of a practical nature can be raised against such
a time-consuming solution. Moreover, it would disregard the nature of the bill of
lading and, perhaps more importantly, the qualities that this document has been
afforded by merchants. Therefore, it is scenarios like the above and the shortcomings
it evidences, that have triggered the debate in Swedish law regarding ‘possession’ in
general, and ‘constructive possession’ (“medelbar besittning”) in particular.
Exactly what is meant by ‘constructive possession’ appears never to have
been fully clarified. 140 However, it would appear that the idea is based on the
assumption that when a third party (carrier (C)) is in possession of the tangible
(goods), he would possess the tangible for the account of one of the parties to the
underlying contract (seller (A), or buyer (B)).141 The crucial questions would then
become for whom the carrier is carrying the goods, and at what point the constructive
136 Sakrätt av seende lös egendom, Håstad, Torgny, 6th ed., 2000 (herein after; Håstad, Sakrätt), p. 205 et seq. According to Scandinavian law there is the further option of having the transfer of ownership registered according to the Sale of Tangibles Act (“Lag (1845:50 s. 1) om handel med lösören, som köparen låter i säljarens vård kvarbliva”) given the fulfilment of certain requirements; see Håstad, Sakrätt, p. 216 et seq. 137 Håstad, Sakrätt, p. 229, and NJA 1949 p. 164. 138 Sakrättens grunder, Millqvist, Göran, p. 108. 139 Tiberg/Lennhammer, p. 56. 140 Allmän sakrätt, Hessler, Henrik, p. 100 et seq., Köp och byte av lös egendom, Del I, Almén, Tore, Stockholm, 1924 (herein after: Almén), p. 124. 141 Ibid.
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possession passes from A to B? In particular, could this occur before the actual
physical transfer of the goods (tradition), i.e. at the port of discharge?
Almén, commenting on the question of constructive possession of goods in the hands
of a carrier in his commentary on the now repealed Scandinavian Sale of Goods Act
(SSGA)142,143 at first arrives at the conclusion, seemingly influenced by the uncertain
position of this concept in Swedish law, that neither seller nor buyer would be in
‘constructive possession’ of the goods. He then continues to say that if one would
still insist on determining the person in ‘constructive possession’ of the goods, he
identifies the seller/sender of goods, given that it is through him the carrier has
gained his ‘direct possession’. However, he then continues to conclude that this
presupposes that “the carrier has not made out a document, the possession of which
is to be crucial for the surrender of the goods. If one such document has been made
out, the carrier could possibly be in ‘direct possession’ on account for the rightful
holder of such document.”144
What Almén seems to suggest, is that if the document that is transferred from
seller (A) to buyer (B) is a bill of lading, the presentation of which is required for the
delivery of the goods, then as soon as the buyer/consignee takes possession of the
document, he cuts of any proprietary rights that the seller (or his creditors) might
have in the goods. In other words, the possession of the document, straight or order
bill, is equal to possession of the goods itself.
Studying the modern legal authorities on this subject, the views seem to
differ. Tiberg is clearly of the view that perfection of title is indeed achieved at the
time of transfer of the bill of lading. In particular, “[W]here the recta bill is a
document of title, the normal assumption is that perfection of title follows on delivery
of the document.”145
Johansson takes a different view, introducing the concept of ‘symbolic
possession’, thereby implying that possession of the document is not equal to
possession of the goods itself.146
While the view that perfection of title is achieved through possession of the
bill of lading is attractive from a commercial point of view, Johansson’s scepticism
appears to be well founded. The main reason for this is the stoppage in transit rule
142 “Lag om köp och byte av lös egendom, given Stockholms slott den 20 juni 1905.” 143 Almén. 144 Ibid., p. 124 et seq. 145 Tiberg, Legal Qualities, p. 34 et seq. 146 Johansson, p. 201 et seq.
41
contained in SSGA § 61, confirmed especially for bills of lading in SMC § 13:57.
The rule, which expressly states that the seller retains his right to redirect the goods
despite the transfer of the bill of lading, shall be dealt with in detail below.
In English law, the general rule for the passing of property, is that property
passes when it is intended to pass.147 The rule is codified in sec. 17 of the Sale of
Goods Act 1979 (SGA 1979). Therefore, the importance for parties to expressly state
in their sale contracts when they intend for property to pass, can not be overly
emphasised.
However, property can only pass if the goods have been individualised; sec.
16 SGA 1979. In the Act this is expressed so that the goods have to be both
“ascertained”148 and “appropriated”149. These questions shall not in this thesis be
dealt with in any greater detail. Suffice it to conclude that property will only pass
when the goods have been clearly separated (ascertainment) and allocated to a buyer
without evidence tending to show that the seller intended to reserve property
(appropriation). An example of such unconditional appropriation is given by the Act
itself, when stating in sec. 18, r. 5 that, “[W]here, in pursuance of the contract, the
seller delivers the goods to the buyer or to a carrier...for the purpose of transmission
to the buyer, and does not reserve the right of disposal, he is taken to have
unconditionally appropriated the goods to the buyer.”.
If the goods that are being sold are either specific, e.g. “one black Volvo V70
car”, or it is not, e.g. “100 tonnes of wheat onboard the M/S Jonas”, but the goods
have been both ascertained and appropriated to a certain contract, the question then
arises when the parties intended for property to pass. If, as has been mentioned, the
parties themselves have specified this in their contract, that will be given effect to.
However, if the parties have failed to make such agreement, the law appears to work
from the assumption that property will not pass as long as the seller need it for
security for the payment of the price.150 In other words, when the price has been paid,
there is a strong presumption that property will have passed at that time.
Further, sec. 19(2) provides that “[W]here goods are shipped, and by the bill
of lading the goods are deliverable to the order of the seller or his agent, the seller is
prima facie to be taken to reserve the right of disposal”. This section has been
147 Benjamin, par. 18-180. 148 Sec. 16. See, however, the new section 20 A. 149 Sec. 18, r. 5. 150 Benjamin, par. 18-180.
42
interpreted to mean that, if the bill of lading is instead made out to the buyer or his
order, property will pass on transfer of the document.151
For straight bills, this presumption, it is submitted, ought to be less powerful.
It is difficult to see that transfer of a document, neither being a document recognised
as a document of title at common law, nor one which without a clause to the contrary
need to be presented for delivery, should be given any higher evidentiary value. It is
one piece of the puzzle, but not a bigger or more important one than, e.g., payment of
the price.
Further, it has been held that retention of a mate’s receipt, another document
not recognised as a ‘document of title at common law’, could evidence an intention
to retain property after shipment. 152 This should, it is submitted, be equally
applicable to straight bills of lading.
Even though under U.S. law the situation is equally complicated,153 the law
on outward bills of lading gives priority on notification.154 This has been said to be
in line with “the assumption that the straight bill of lading is not a document of
title”.155
3.4.1.1. The stoppage in transit rule
The rule that the seller can, under certain circumstances, stop or redirect the goods
while in transit, is in Scandinavian law contained in SSGA § 61 and SMC § 13:57.
The combined effect of these two provisions is that if after the conclusion of a sale,
there are by the buyer’s acts or financial situation strong reasons to suspect that he is
not willing or able to fulfil an essential part of his obligations under the contract of
sale, the seller is entitled to withhold his obligations under that same contract (SSGA
§ 61). Moreover, and more importantly, this right of the seller is retained despite the
fact that he has surrendered the bill of lading to the buyer (SSGA § 61, 2 par, SMC §
13:57).156
In effect, the rules would indeed seem to indicate that perfection of title is not
achieved when the buyer takes possession of the bill of lading, i.e. that ‘constructive
151 Benjamin, paras. 18-187, 19-084 and 19-098. Some writers have emphasised that this is a simplification; whether property passes or not will still be a question of the facts as a whole in order to clarify the intention of the parties: see Debattista in, Transfer of ownership, p.141, and Sassoon, par. 160. 152 Benjamin, par.18-199 and the cases there referred to. 153 The bill of lading, Bools, Michael D., 1st ed., 1997, p. 61 et seq. (herein after; Bools). 154 Ch. 801, § 80106. 155 Tiberg, Legal Qualities, p. 35. 156 SMC § 13:57, 2 par. further prescribes that this right can not be exercised against a good-faith acquirer of an order or bearer bill of lading.
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possession’ is not recognised by Swedish law, at least not in connection with bills of
lading.
In English law, a similar problem is caused by the rules on stoppage in transit
contained in SGA 1979.
According to section 44 of the SGA 1979 there are four conditions that must be
satisfied if the seller is to exercise his stoppage right: i) the seller has not been paid,
ii) the buyer has become insolvent, iii) the seller has parted with possession of the
goods, and iii) the goods are in the course of transit.
However, since straight bills are regarded as sea waybills, at least according
to COGSA 1992, as well as the differing approach to the passing of property in
English law, this problem depends on different considerations and has different
effects.
As has been cited previously, Sec. 5(3) of COGSA 1992 states that a sea
waybill is a document “which allows for the identity of the person [to whom the
goods are deliverable] to be varied, in accordance with the terms of the document,
after its issue.” The effect of this section is that the right to demand delivery from the
carrier which is given to the consignee named on the straight bill through sec. 2(1) a)
of COGSA 1992, is a most fragile right. Sec. 5(3) gives the shipper described on the
bill the right to, prior to discharge, instruct the carrier to deliver the goods to
someone other than the person named as consignee on the bill. This is a characteristic
of the sea waybill which is recognised in most legal systems, Scandinavian law
constituting no exception.157 However, the obvious difference is that in Scandinavian
law straight bills are not regarded as sea waybills in the first place, but rather as bills
of lading. The fact that the seller according to COGSA 1992 retains the right to
redirect the goods even after he has given up possession of the bill has two further
consequences.
Firstly, the fact that the person named as consignee on a straight bill only has
the right to delivery as long as he is in fact so named, must mean that the carrier can
not be liable for misdelivery if he follows the shipper’s ‘new’ delivery
instructions.158
Secondly, the in Scandinavian absolutely crucial question whether the seller
should retain his right to stop the goods in transit beyond transfer of the bill, becomes
157 SMC § 13:58. 158 Debattista, par. 2-48.
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in English law a non-issue. Since straight bills are regarded as sea waybills by
COGSA 1992, possession of the bill become irrelevant to the right to demand
delivery, save for where the bill contains a clause to this effect.
As has been explained above159, The Rafaela S indicated by way of obiter
dicta that this situation might possibly change in the future. However, for the reasons
explained in connection with that discussion, this thesis shall work from the
assumption that the case has not overruled the fact that COGSA 1992 still regards
straight bills as sea waybills. Therefore, the following discussion is limited, as far as
English law is concerned, to order bills and straight bills containing a presentation
clause.
For these documents it would appear, even though neither SGA 1979 nor
COGSA 1992 says anything to that effect, that the seller retains his stoppage right
beyond transfer of the bill.160 However, the fact that the shipper retains an absolute
right under the contract of carriage to redirect the goods while in transit does not
mean that he can redirect the goods without being liable to the buyer under the
contract of sale. Indeed, it would appear that unless the seller has the right to stop the
goods in transit under the SGA 1979, the seller could recover in contract.161
Therefore, as long as the seller satisfies the requirements posed by SGA 1979
cited above, he is entitled to redirect the goods according to COGSA 1992 without
risk being sued under the contract of sale.
3.4.1.2. Arguments for not maintaining the stoppage in transit rule
The conflict between the perfection of title to goods covered by a bill of lading, and
the stoppage in transit rule has been addressed above. However, the rule that the
seller can redirect the goods despite the surrender of the bill of lading, hides yet
another conflict.
As we have seen above, the possession of the bill of lading coupled with
being named as consignee on its face, does not only give the consignee the right to
demand the goods from the carrier; it also obliges the carrier to deliver the goods to
that person. If he fails this, he will risk having to defend a claim from the consignee
for refusing delivery. If one adds the stoppage in transit rule to the formula, where
159 Infra, 3.2.2. 160 Benjamin, paras. 15-061, 15-067, 15-085 and 15-087, and Debattista, par. 2-51. 161 Debattista, 2-49.
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the seller possesses a seemingly unlimited right to redirect right to redirect the goods,
one has a problem at hand in which the carrier faces a troublesome situation.
The basic situation where this problem would materialise is where the seller has
already transferred the bill of lading to the buyer, i.e. giving him constructive
possession of the goods. One could then face a situation where there are competing
claimants to the goods; the buyer by virtue of his possession of the goods, and the
seller through the stoppage in transit rule. The fact that it is the buyer that has
concluded the contract of carriage with the carrier, as would be the case where the
contract of sale is on F.O.B. terms, makes no difference to the seller’s right of
stoppage in transit.162
The party in real difficulty in such a situation would be the carrier. On the
one side he risks breaching his obligations towards the seller, and on the other side
he risks facing possibly strict liability towards the holder of the bill of lading. The
carrier’s position becomes especially precarious where, as we have seen could very
well be the case, the instructions as to stoppage comes from a seller that he has no
contract of carriage with, or any other contact for that matter. Obviously, the answer
could not be that the carrier would face liability regardless of which action he takes.
Therefore, one must decide whether the rules on stoppage in transit prevail, or
whether the carriage rules should be determinative.
Scandinavian law contains a rule that could possibly work to mitigate the
problems caused by the conflict between the stoppage in transit rule and the
consignee’s right to demand delivery. If several copies of the bill of lading have been
issued, something that is very common in practice, with the seller retaining at least
one, he could demand delivery from the carrier at the destination in competition with
the buyer, himself supposedly possessing a copy of the bill. In such a case, as was
discussed above, the carrier is obliged to store the goods and after that let the
creditors solve their dispute as to better rights to the goods.163
It has been questioned, correctly it is submitted, whether in such a case the
consignor/seller could be said to possess ostensible authority, given that straight bills
are always made out to a named consignee. How can the carrier be said to be
uncertain of who is entitled to delivery, when only the holder named on the bill could
be the one? In other words, the potential conflict anticipated by the SMC § 13:53
162 NJA II 1906 p. 105, and “Tedderfallet” ND 1985 p. 1. 163 SMC § 13:53.
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would never arise thanks to the rules on ostensible title. This has lead scholars to
question the appropriateness of applying the stoppage in transit rule to straight bills
of lading at all.164 Nonetheless, provided that they would indeed apply to straight
bills, according to the SSGA § 61, 2 par. /SMC § 13:57 the following dispute is one
that the seller would be victorious in.
However, SMC § 13:53 does not deal with the situation where the seller has
transferred all the copies and simply utilises his stoppage right. Moreover, this is
where the previously mentioned issue of whether good-faith is required for the
carrier to perform his duties under SMC § 13:52 becomes crucial. If there is a good-
faith requirement included in SMC § 13:52, one could argue that where the seller
utilises his right of stoppage in transit, the carrier would be put in bad-faith and the
buyer, the holder of the bill, would therefore no longer possess passive ostensible
title.165 Should the rules on stoppage in transit be allowed to have effect for the
contract of carriage in this fashion?
In Scandinavian law, as has been indicated, it would appear that in both the
above described conflicts would the stoppage in transit rules be victorious. Perfection
of title is not achieved by transfer of the bill of lading and the consignee’s right to
demand delivery is subject to the seller’s redirection of the goods. While the former
conflict is not of great relevance for English law, the latter could very well
materialise.
There are both historical as well as practical reasons, it is submitted, for why
the seller should not retain these rights and that the stoppage in transit rules need,
therefore, be reconsidered in both English and Scandinavian law.
i) The historical argument
As we have seen above, merchants created the document we now call the bill of
lading in order to maintain a system which enabled them to both raise credit for the
invariably slow sale of goods carried by sea, and to sell the goods while in transit.
The bill of lading was capable of providing both; banks received adequate security
by possession of the document and the goods where easily sold by merchants by
transferring the document between seller and buyer. At the essence of these functions,
as well as the success that was achieved by the bill of lading as the performer of them,
164 Tiberg, Legal Qualities, p. 33. 165 Håstad, Köprätt, p. 174.
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stood two fundamental characteristics of the document; the fact that it was freely
transferable, and the fact that delivery could only occur against, but was crucial for,
delivery. In other words, the possession of the document was equal to possession of
the document itself. The stoppage in transit rule, therefore, represents a clear
departure from the historical background and functioning of the bill of lading.
ii) The practical argument
Even if this historical background is completely ignored, there are other more
practical arguments to be raised in favour of abolishing the stoppage in transit rule.
Firstly, the fact that the seller would maintain his right to stop the goods in
transit in competition with the consignee in possession of the bill of lading, would
have the unhappy consequence of forcing an investigating role on the carrier.166 In
effect, it would be for the carrier to decide whether the seller’s claim is a good one or
not. Further, to put on the carrier the task of remaining in port to settle claims
between sellers and buyers, contains a strong element of commercial
unreasonableness. In today’s international trade, where speed is of the absolute
essence, stalling carriers in port for such reasons is difficult to defend.
Secondly, very strong arguments suggest that the carrier should only have to
look at his contract of carriage for his obligations.167 In particular, if the sale contract
is on F.O.B. terms, it would seem very odd to have the carrier take into consideration
the claim from the seller, a party whom he has had no contact with whatsoever. As
has been said in the literature; “it is difficult to see why the carrier should put himself
to cost and trouble on account of a problem created by the seller’s folly (transferring
the bill of lading before payment) and the buyer’s default (non-payment).”168
Thirdly, the arguments are even further strengthened if one adds the
complicating factor of bank involvement.169 The fact that the function of the bill of
lading as security under a letter of credit sale is weakened by the stoppage in transit
rules, could very well lead to the undermining of the entire shipment sale financing
system. If banks are not allowed to make use of its security, there is the risk of a
diminished willingness to finance shipment sales, a consequence that must be
avoided.
166 Johansson, p. 381. 167 Johansson, p. 373. 168 Debattista, par. 2-51. 169 Johansson, p. 381.
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Against this background there are, it is submitted, good reasons for questioning
whether one should allow the stoppage in transit rule to interfere with the rules on
presentation. Moreover, perfection of title ought to be achieved through transfer of
the bill.
In Scandinavian law, one suggestion that has been raised in the literature is to
maintain a good-faith requirement but to give it a special meaning in the SMC.170
Only where the seller procures very strong evidence regarding his right to the goods,
would the carrier be deemed to be in bad-faith, forcing him to obey the seller’s
instructions. This has also been expressed so that the carrier should only be obliged
to take the seller into consideration in cases where his better right is obvious.171
Another, perhaps more attractive solution, is to simply cut of the stoppage
right on transfer of the bill of lading. In American law, this is the position, at least for
inbound shipments as regulated by the UCC. According to § 2-705(2) (b) of the Act,
the right of stoppage is exercisable until negotiation to the buyer of any negotiable
document of title covering the goods.172 This solution is obviously easier to argue for
in English law than in Scandinavian law, the latter clearly stipulating the opposite in
statute. However, as has been described above, for Scandinavian there are further
considerations relating to the special character of straight bills of lading that makes
the stoppage in transit rules fit especially ill in the case of such documents. The fact
that, as we shall see below, in Scandinavian law perfection of title follows with
transfer of the bill further strengthens the argument.
Until the issue has been clarified through case-law or legislation respectively,
the likely scenario in practice, it is submitted, is that carriers are likely to deliver the
goods to the holder of the bill, and to do this only against a letter of indemnity. Given
the questions as to the enforceability of such indemnities, the prudent carrier is well
advised to also demand a bank-guarantee to back the undertaking. Moreover, under
U.S. law, this is provided for by statute. UCC § 7-504 (4) stipulates that a carrier
honouring the seller’s instructions is entitled to be indemnified by the seller against
any resulting loss or expense.
As far as perfection of title is concerned, the only safe advice to give is that
transfer of possession of the goods, or perhaps slightly more functioning in practice,
notice to the carrier that the goods have been sold, will definitely lead to perfection
170 Johansson, p. 382, and Stoppningsrätt, Tiberg, Hugo, SvJT 1993 p. 553 (herein after; Tiberg, SvJT). 171 Köplagen, Ramberg, Jan and Herre, Johnny, 1st ed., 1995, p. 594. 172 See further; Johansson, p. 103, Tiberg, SvJT, p. 556, and Debattista, par. 2-51, fn. 16.
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of the seller’s title. The extent to which Swedish law recognises ‘constructive
possession’ remains uncertain, and there are no guarantees that transfer of the bill of
lading alone will lead to perfection of title.
3.4.2. The buyer’s protection against other buyers of the same goods
The starting point in Scandinavian law is, as has been explained above, that the
possession of the goods or possibly transfer of certain documents representing the
goods will protect the buyer from third party claims. For reasons of business efficacy
these rules are easy to motivate. However, the question of tvesala is slightly
different; presuming that the latter acquirer is in good-faith, what is there to say that
he should suffer from the fraudulent act of the seller, rather then the first buyer? In
other words, could that acquirer in fact claim better right to the goods, so that one
could say that the latter’s good faith acquisition not only creates title for him, but
also that it extinguishes the title of the first buyer?
The solution applied to the problem is commonly referred to as the ‘principle
of extinction’ (“extintionsprincipen”). In Scandinavian law, the main rule for all
running documents has in general been that a third party in good-faith could indeed
acquire title to the goods at the same time extinguishing that of the previous holder,
i.e. the principle of extinction has been applied.173 For tangibles the situation is now
regulated in the Good-Faith Acquisition of Tangibles Act,174 and according to its § 2,
such property could indeed be acquired in good faith if certain requirements,
unnecessary to further examine here, are fulfilled.
The Act is, however, not applicable where special legislation is available.175
Such legislation is to be found for bills of lading in the SMC. In Scandinavian law,
the rule is that order bills can be acquired in good-faith with title being created for
the acquirer, but that straight bills cannot be so acquired.176
The reason for this distinction lies in the differing function of the two
documents. Given that straight bills of lading, as opposed to order bills, are not
intended for transfer, a good faith acquirer of such a bill will not get better title than
the predecessor, the substantive title holder. One says that the document is
173 Tiberg, Legal Qualities, p. 22. 174 ”Lag (1986:796) om godtrosförvärv av lösöre” 175 Ibid., § 1, 2 par. 176 SMC § 13.56. See further; Tiberg, Legal Qualities, p. 36, fn. 143 in particular, and Johnson, Bengt Åke, in Transfer of property, p. 378, and Tiberg/Lennhammer, p. 63 et seq.
50
‘vindicable’ (“vindicera”), i.e. the real title holder is entitled to have the document
returned.177 The rule is not mentioned in the PNA, but is entirely derived from its
motives.178
In English law, the question whether the second buyer of the goods and
acquirer of the bill of lading will get a better title than that of the first buyer, is a
question of ‘negotiability’, the consequences of which is defined in sections 24-26
and 47 of SGA 1979.179 To the Scandinavian lawyer this might sound confusing; to
him negotiability is a question of better title in the carrier/consignee relationship only.
However, as has been explained above, such issues are in English law dealt with
under the label of estoppel, either at common law or through statute.
Moreover, to confuse the Scandinavian lawyer even further, the question
whether a document is in fact ‘negotiable’, as described above, depends on whether
one is holding a document of title as defined in the Factors Act 1889. One can not
emphasise enough that this document of title as defined in statute, is not the same as
the document of title at common law that has previously been discussed in this thesis.
In fact, there are documents that are documents of title according to sec. 1(4) of the
Factors Act, but which are without a doubt not documents of title at common law.180
Turning then to the issue of which documents are recognised as documents of
title according to the Factors Act 1889, sec. 1(4) lists the following;
“any bill of lading, dock warrant, warehouse-keeper’s certificate, and warrant or order for the
delivery of goods, and any other document used in the ordinary course of business as proof of the
possession or control of goods, or authorising or purporting to authorise, either by endorsement or by
delivery, the possessor of the document to transfer or receive goods thereby represented.”
While order bills of lading would arguably fall within this category,181 it is not
obvious that straight bills do. Considering that COGSA 1992 regards such
177 It has been held in the literature that a holder of straight bill could waive his right of vindication by endorsing the bill in blank; see Tiberg/Lennhammer, p. 65 and the further sources there referred to. 178 Tiberg/Lennhammer, p. 63. 179 Debattista amicably summarises the circumstances as follows: “where a paid seller or a defaulting buyer transfers a document of title to a third party transferee in good faith, the transferee acquires a better title than that of his transferor and, therefore, than that of the buyer who paid the seller in the first case and than that of the unpaid seller in the second”: Debattista, par. 3-07, fn. 20. 180 Debattista, 3-07. 181 For different reasons, English lawyers have for a long time been debating whether even order bills of lading are fully negotiable. Debattista argues, correctly it is submitted, that this is the case; if they were not, not only would the market have for a long time been using a label for bills of lading that is incorrect (‘negotiability’), the provisions in ss. 24, 25 and 47 would also become meaningless: Debattista, par. 3-16 et. seq. For a different view, see, Benjamin, par. 18-047.
51
documents as sea waybills, a document not mentioned by the Factors Act, this
question appears legitimate to ask. However, a closer scrutiny of the cited section
seems to indicate that they are in fact included.
Firstly, there is nothing to indicate that the general words “any bill of lading”,
should not be wide enough to include a straight bill of lading, even though the
document is not a document of title at common law.182
Secondly, even if one regards the document as a sea waybill rather than a bill
of lading, it has been argued that the phrase “used in the ordinary course of business
as proof of the...control of the goods” would include even such a document.183 The
fact that COGSA 1992 gives the person named on such a document the right to claim
the goods from the carrier, would appear, it is submitted, to fulfil the necessary
requirements.
In either case, the conclusion does seem to lean towards granting straight
bills the status of a document of title in the statutory sense, thereby making it a
‘negotiable’ document.184
In this sense, straight bills differ from ‘nonnegotiable’ bills under U.S. law.
According to Ch. 801, § 80106(a), the transferee of a straight bill merely receives
“title to the goods against his transferor”. A straight bill cannot by endorsement
become a ‘negotiable’ bill and, therefore, only if he possesses a bill recognised as
‘negotiable’, i.e. an order bill according to the parlance of this thesis, will the second
buyer be protected.185
182 Benjamin, par. 18-062. 183 Debattista, par. 3-27. Professor Debattista writes primarily about the negotiability of sea waybills, but there is nothing to indicate that he would treat straight bills differently. 184 For a different view, see, Tiberg, Legal Qualities, p. 36, fn. 144, and the citations there made. 185 Bools, p. 74.
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4. Conclusions As this thesis has hopefully shown, there are indeed substantial differences between
different legal systems when it comes to the legal identity of straight bills of lading.
Further, these differences are perhaps most apparent when comparing Continental
and Anglo-American jurisdictions.
Firstly, while English and American law considers certain documents to be
non-transferable, that is simply not an issue in most Civil law jurisdictions; all
documents are transferable, although admittedly some might not be intended for
transfer.
Secondly, the concept of ‘negotiability’, whereby under Continental law the
transferee can acquire a better right against the carrier than that of his predecessor, is
in English law concerned with better right against other pretenders claiming
proprietary rights to the goods.
Thirdly, while Scandinavian law bases the right to demand delivery from the
carrier on seeming title and presentation of the document, English law and COGSA
1992 regards straight bills as sea waybills, making possession of the document
irrelevant.
Fourthly, while under Scandinavian law property in the goods passes with
delivery of the document, English law contains a far more complicated system where
the Courts are forced to determine when the parties intended for property to pass.
Fifthly, while under Scandinavian law a straight bill is not capable of being
purchased in good faith by a subsequent buyer, thereby extinguishing the title of the
initial buyer, this appears to be the case under English law.
However, as this thesis has also hopefully shown, behind the seemingly great
disparities lies also similarities. Indeed, in many cases it is simply a matter of asking
the right questions.
Firstly, if the question asked is whether a document is ‘negotiable’, one will
definitely receive different answers depending on who is giving them. However, if
instead the question asked is to what extent the transferee of a straight bill can bind
the carrier to what it states, then a very similar answer will be given, at least as far as
the statements regarding the cargo as regulated by the H-V-R, or the common law.
Secondly, while transfer of a straight bill of lading is in English law not
determinative as far as the passing of property is concerned, but rather when the price
has been paid, those moments will in all but most cases coincide. In practice,
53
therefore, the buyer will be protected from the seller or his creditors when the bill is
transferred against payment of the price, thereby establishing conformity with
Scandinavian law.
Thirdly, despite the fact that English law fails to recognise the straight bill as
a distinct type of bill of lading, COGSA 1992 still gives the transferee of such a
document the right to demand the goods from the carrier. Further, even though this is
a most fragile right, The Rafaela S has clearly affirmed the use of so-called
presentation clauses for straight bills, making presentation a condition for delivery
even in the case of such documents.
Nonetheless, there are, however, differences that cannot be explained by
conceptual differentiation or divergent semantics. Instead, these are far more
fundamental and go, as we have seen, to the very root and classification of the
documents. The explanations to these basic differences lie in varying historical
backgrounds. The presentation issue, in Scandinavian listed as a requirement for
qualifying as a bill of lading at all, is certainly among these. As has been explained,
the common law, however, found it very difficult to think of the transfer of
something intangible, thereby forcing the Courts to label the documents not
recognised as documents of title at common law, as non-transferable. Therefore, it is
perhaps not so odd that the requirement of presentation, the requirement that
Scandinavian lawyers regard as the distinguishing characteristic of a bill of lading, is
historically not seen as a requirement for straight bills in English and American law.
Thus, in those jurisdictions straight bills are arguably more akin to the sea waybill. In
other words, if straight bills are considered to be non-transferable and therefore not
subject of transfer at all, what reason is there to protect the carrier with a requirement
as to presentation?
In The Rafaela S, the House of Lords approved the use of presentation
clauses in straight bills. Their Lordships further indicated that presentation of a
straight bill might even be a condition for delivery in the absence of such a clause,
but a definite ruling to that effect remains yet to be given. However, even though a
future ruling to that effect would have positive effects as far as uniformity with
Continental jurisdictions is concerned, it would have the opposite effect towards U.S.
law. The strength in the argument to maintain uniformity in the rules governing bills
of lading between English and American law, must not, it is submitted, be
underestimated. In other words, whichever route the English courts decide to take,
54
the result will inevitably be a lack of uniformity in the case of the rules governing the
carriage of goods by sea.
Further, The Rafaela S made it absolutely clear that the H-V-R are in fact
applicable to straight bills. While the judgement is much welcomed for practical
reasons as well as far as uniformity with Continental law is concerned, it does,
however, at the same time create difficulties within English law. The only logical
conclusion one can draw following The Rafaela S is, it is submitted, that there are
now not only two, but three different types of documents of title recognised by
English law; the document of title at common law, the document of title as defined
by the Factors Act 1889 sec. 1(4) and finally the document of title as identified by art.
I (b) of COGSA 1971. Therefore, the consequence of The Rafaela S is not that the
case clarified what a document of title is, but rather that it complicated it even
further.186
Therefore, and despite the similarities that do indeed exist between the
jurisdictions examined, there are fundamental differences. As was most recently
highlighted by The Rafaela S, there is indeed a clear need for unification of the rules
governing the documents involved in the carriage of goods by sea. The H-V-R was
aimed at achieving just that, but has failed in at least two respects.
Firstly, the Rules, or perhaps rather the way they have been interpreted by the
courts, have become obsolete and are therefore definitely in need of a revision for
that reason. The fact that the estoppel mechanism provided by art. III, r. 4 is in
practice always avoided by carriers, provides perhaps the clearest example of the
shortcomings of the Rules.
Secondly, the Rules failed in providing a uniform definition of the different
documents they are applicable to. Given the practical importance of the Rules, this is
likely, it is submitted, to have greatly contributed to the confusion. Instead it was left
to the different member states to give effect to the Rules by fitting them into their
respective legal systems, as they deemed appropriate. This has resulted in difficulties,
a recent example of that being The Rafaela S and the fact that art. I(b) of COGSA
1971 provides that the Rules are only applicable to “similar documents of title”,
words that are for example not found in the French version of the Rules.187
186 It is further interesting to note that the meaning ‘document of title’ as it has been given by Scandinavian scholars, does not fit any of the three meanings of this concept as identified above. 187 The Rafaela S [2005] 1 Lloyd’s Rep. 347, per Lord Steyn, par. 44.
55
The Hague and Hague-Visby Rules have undoubtedly played a very important part
for the development and prosperity of maritime transportation during the last 80
years. However, the time has now come for a successor to take the throne, a
successor likely to be found in the UNCITRAL proposal. Hopefully this thesis will
serve its purpose as an illustration of the many issues that the draftsmen of the
UNCITRAL proposal must take into consideration, and the legal backgrounds that
must be kept in mind by lawyers well beyond the adoption of any new regime.
56
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Table of cases Scandinavian cases NJA 1949 p. 164.
ND 1954 p. 373 (The Hoegh Mouette).
ND 1957 p. 91 (The Leikvoll).
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ND 1985 p. 1.(The Tedder-case).
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Grant v. Norway (1851) 10 C.B. 665.
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The Sormovskiy 3068 [1994] 2 Lloyd’s Rep. 266.
Sze Hai Tong Bank v. Rambler Cycle Co [1959] A.C. 576.
American cases Friedlander v. Texas, etc, R. Co. 130 U.S. 416.
Asian cases The Brij [2001] 1 Lloyd’s Rep. 131.
59
Voss v. APL Co. Pte. Limited [2002] 2 Lloyd’s Rep. 707.
Zim Israel Navigation Company Ltd. v. Sun Hing Shipping Co. Ltd. The Supreme
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