Is the Carriage of Goods By Sea Act the Complete Contract of Carriage Panacea?

UCHE I. OKORIE*

Introduction. The Bills of Lading Act 1855 (1855 Act) addressed some of the problems of Bills of Lading in terms of the doctrine of privity of contract. What this presupposes is that prior to the legal regime of the 1855 Act, a legal regime rooted in the Common Law was the norm.1 With the development of the contractual concepts of consideration and privity an apparent conflict with the concept of Bill of Ladings arose.2 To get a proper analytical handle we will raise certain posers. What was the conflict between Bill of Ladings and privity? How and to what extent did the 1855 Act try to resolve this conflict? Was the 1855 Act technique effective? With the debut of the Carriage of Goods Act 1992 (1992 Act) can we say the Act is a complete panacea to all the difficulties in this area of the law? What are the shortcomings of the Act? What should be reformed? These fundamental queries constitute the gravamen of our discourse. Lets set sail. 1.0. The Common Law Doctrine of Privity & Bills OF LADING. The common law and the history of the law of Carriage of Goods (COG) particularly the Bill of Lading is as fascinating as it is chequered.3 For some centuries the Bill of Lading principles flourished without hindrance, until the inexorable confrontation with the privity doctrine as regards third party rights. The original doctrine of privity consisted of two rules - first, that a third party may not have obligations imposed by the terms of a contract, and second, that a third party may not benefit from the terms of a contract.4

For the history of the common law see generally (Langbein, 2009) and for the history of BLs see (Bennett, 1914) See note 5 post. However due to the brevity of this paper and the fact that the historical antecedents of the BL is not part of our enquiry we

would not attempt a historical incursion.

4

See (McKendrick, 2007).

It is the second limb that carries the confrontational dagger of threat on Bill of Ladings in that it meant that the contractual aspirations and frustrations of a third party was without redress. The contest of wits between the two milieus attained notoriety in the Dunlop Pneumatic case5 where Haldane VC assertively crystallized the privity concept by adumbrating that only a person who is a party to a contract can sue on it.6 With such posturing it was not particularly in the realm of rocket science to discern that there was bound to be conflict between the privity doctrine and the Bill of Lading milieu. 2.0. In what area did this conflict arise? The intriguing thing was that as at the time of Viscount Haldanes exposition a third party i.e. a beneficiary under a trust had rights of suit. But other than this limited exception a third party was regarded as a stranger to the contract. In Thompson V. Dominy7 long before the succor that was to eventually come to third parties, the confrontational potentialities of the privity doctrine was exhibited to devastating effect regarding third party rights to sue or benefit from the contract. Here the Court of Exchequer8 in a case involving a part delivery of 1303 barrels of oats, held the endorsee incapable of maintaining an action in his own name as the effect of the endorsement was only to transfer the right of property in the goods not the contract itself. Thus in essence the opinion of the court was that negotiability of a Bill of Lading does not equate to a right of suit.

[1915] UKHL 1 Ibid at 853 (1845) 14 M & W 403, 153 ER 532 Per Parke B, Alderson B, and Rolfe B concurring.

The practical effect of this was that third party consignees of goods or endorsees of Bills Of Lading were incapable of enforcing their rights with the consequent diminution of the value of a Bill of Lading as a viable trade tool. The privity doctrine has been vilified and rightly so by various legal scholars and commentators.9 Reform of this doctrine in recent times pursuant to the Contracts (Rights of Third Parties) Act 199910 was greeted with a sigh of relief and heralded with an apt summation by a learned scholar that the passage of the Act has removed one of the most universally disliked and criticized blots on the legal landscape.11 However before privity finally met its waterloo, the legal quagmire it created led to the enactment of the 1855 Act. 3.0. How and to what extent did the 1855 Act address this conflict? The primary technique of the 1855 Act was the effectuation of a transfer of the shippers rights to the consignee or endorsee to whom property in the goods passed upon or by reason of the consignment or endorsement.12 The disillusion occasioned by the conflict perhaps informed why the 1855 Act very early on recognized that...it is expedient that such Rights (all Rights in respect of the Contract contained in the Bill of Lading) should pass with the Property13 Thus the technique was to vest the consignee or endorsee with all rights of suits and liabilities as if the original contract evidenced by the Bill of Lading was made between him and the carrier.14

At various times it has been criticized by the likes of Lords Denning, Scarman and Reid. See generally (Treitel, 1983) Cap 31 has reformed the law in this respect in England. (UK Parliament, 1999). Some jurisdictions including Singapore

10

via the (Singapore Parliament, 2001) have reformed their law to conform to the UK.
11

(Dean, 2000). Section 1, (Parliament, UK, 1855) See generally (Girvin, 2011) See Preamble to the 1855 Act and Note 3 supra for citation.

12

13

Professor Stephen Girvin referred to the effect of Section 1 as a ...statutory form of assignment...15 saying that In effect, what was transferred to a consignee or endorsee...was not only the right to sue but the burden in the contract.16 The transferee...did not take the same contract as the consignor but a new contract on the basis of what appeared on the face and reverse of the Bill of Lading.17 One wonders though with the greatest respect, if it can be rightly said that a new contract exists on the basis of the burden of an extant contract. It appears that what the Act simply did by s.1 was to retrospectively integrate the consignee or endorsee into the original contract consummated between the shipper and the carrier. This was done by imbuing the consignee or endorsee with an additional right to suit hitherto enjoyed by the shipper against the carrier. Was this a Novation? To the extent that a contract transferred by the novation process transfers all duties and obligations from the original Bill of Ladings to the new Bill of Lading and that here there was no stricto sensu a transfer of all duties and obligations from the original Bill of Lading (the Shipper) to the new Bill of Lading (the Consignee or endorsee) I would say that it is not a novation. What is more? The shipper still had a residue of obligations and duties and the requirement that the consent of all the parties involved in the original agreement must be sought, removes it from the purview of novation as the existence of chain endorsements without consent proves. Moreover the consent requirement is a limitation of the shippers right to sell the goods even when it is in transit which offends s.1. Thus my understanding is that the Act in effect recognized a tripartite contractual arrangement with varying but mutually compatible rights, incidence and burden on the parties as the stream of contract flowed towards completion.

14

Ibid at Section 1. At Paragraph 8.12 of page 93 of his book. See Note 3 supra for full citation of the book. Emphasis mine. Ibid.

15

16

17

Suffice it to say however that the Act brought about a new legal order based on the existence of an overarching nexus between transfers of contractual rights and the passing of property. 3.1. Was the primary technique of the 1855 Act in dealing with the privity challenge effective? The Act from beginning was replete with challenges casting serious doubt on the efficacy of the remedy adopted. Its primary technique ended up being too simplistic a formula. Whilst it tried to solve one problem it also raised new ones. It proved to be helplessly undiscerning in deducing the growth and trajectory of International sales contracts which was imminent in the 19th Century. To illustrate, it is pertinent we examine s. 1 of the 1855 Act because the drafting of that section later became the vortex of the main challenges experienced under the 1855 Act. S. 1 of the 1855 Act stipulated as follows: "Every consignee of goods named in a Bill of Lading, and every endorsee of a bill of lading, to whom the property in the goods therein mentioned, shall pass upon or by reason18 of such consignment or endorsement as if the contract contained in the bill of lading had been made with himself" This section became the object of judicial scrutiny. Some of the notable cases are xrayed below.

18

Emphasis mine.

3.1.1. Cases involving no intention to transfer property. In Sewell V Burdick19 by the nature of the vehicle used there was no intention to transfer property. Here the Ship-owners sued the endorsees of a Bill of Lading for freight on the basis that liabilities had been transferred to them under s. 1 of the 1855 Act. The endorsees were not party to the original contract of carriage, and had taken the Bill of Lading only as security for a loan. The Bills Of Lading were indorsed in blank and the goods were never delivered. Lord Fitzgerald20 opined that the case turned on the nature of a pledgee's property. A pledgee does not obtain general property in the goods, merely a special property. This will be true in cases where banks take Bills Of Lading as security, in exchange for advancing money on a commercial credit, not minding how the Bill of Lading is indorsed. In such scenarios the Act does not apply and consequently neither liabilities nor rights of suit are transferred. Without the transfer of rights of suits the banks (pledgee) cannot sue on the carriage contract either. Thus the special relationship that was created in this regards as between pledgor and pledgee operated to defeat the legitimate interests of the holder of the Bill of Lading. Faced with such an unsavoury situation one can rightly guess what the banks reaction was concerning advances and the deleterious effect this would have had on the growth of trade. 3.1.2. Cases where property passes before or independent of endorsements An interesting scenario as regards the drafting of S.1 is the courts interpretation of the words upon or by reason of... In these instances property has been held not to pass before the transfer of the Bill of Lading because the property could not then be said to pass "by reason" of the transfer of the Bill of Lading.

19

(1884) 10 App. Cas. 74 Ibid at p. 106

20

In the Captain Gregos21, properties passed to the buyer at the time of shipment and to the sub-buyer when the ship reached the Dutch coasts but the Bills of Lading were never transferred to the sub-buyer. In consequence neither buyer was able to claim under the 1855 Act against the carrier for short delivery. In The Delfini also a case of short-delivery of a cargo of condensate (oil) shipped in the Delfini from Bejaia, Algeria to Gela in Italy. The argument advanced in support of the seller was that since the Bill of Lading was not endorsed in the plaintiff's favour until sometime after discharge, and as it was made out to seller's order, the sellers had retained a right of disposal, and property did not therefore pass until endorsement. The court in rejecting this argument formulated a dual pronged approach as opposed to a broad or literal interpretation favoured by Carver or Scrutton22 respectively, of the words upon and by reason of endorsement used in s. 1. Mustill LJ opinedin my judgment it means that although the endorsement of the bill is not the immediate occasion of the passing of property, nevertheless it plays an essential causal part in it.23 Since delivery was made against an indemnity from the shipper property passed prior to, and independently of, endorsement of the Bill of Lading, the consequence being that s. 1 of the 1855 Act could not be triggered as the Bills of Lading were redundant.

21

[1990] 1 Lloyd's Rep. 310 (Thomas Gilbert Carver, 1971) was of the view that the timing of consignment, endorsement and passing of property are

22

not necessarily coincidental and does not have to be. Scrutton in (Sir Thomas Edward Scrutton, 1996) on the other hand preferred the literal and hence narrow interpretation of the section. See (Haselgrove-Spurin, 2004)
23

At Page 274.

The Delfinis difficulties can be seen in the realm of international sales contracts where the passing of property often occurs independently of the transfer of the Bill of Lading to the buyer. The practice of providing that the title to the cargo passes to the buyer upon loading on board the vessel is prevalent in oil transactions, and the Bill of Lading is only received by the buyer long after the cargo has been discharged from the vessel. If Mustill LJs interpretation is to attain a pride of place it would mean that the buyers in most of these kinds of contracts would lack recourse to justice as the essential causal part criteria in the Delphini would not be met. 3.1.3. Cases where property passes after endorsement It is usual for property to pass at the very latest with the transfer of shipping documents as this often coincides with the parties intention. However property may pass after endorsement or consignment of the Bill of Lading like in cases of unascertained bulk cargo where under the sales contract property passes on the goods becoming ascertained.24 In the Aramis the Court of Appeal rejected a contention that the buyer should have a right to suit against the carrier for short delivery on the grounds of such right being just and reasonable and held that such right was inconsistent with s.1 of the Act and was a recipe for uncertainty. Another tricky area is where the parties contract pursuant to the exercise of their valid contractual intent (usually expressed or couched in title retention clauses) for the passing of property either subsequent to the transfer of the Bill of Lading or even after delivery of the goods. In such a scenario a strict reading of s.1 would operate to bar what would otherwise have been a legitimate claim by an aggrieved party as the passing of property here is contractual and not upon or by reason of the endorsement.

24

S. 21 Sale of Goods Act.

4.1.4

Cases where property does not pass

In some cases the unascertained goods may get lost in transit thereby rendering passage inchoate as demonstrated in the Mambre Saccharine25 where goods which were actually shipped aboard the Algonquin, was later sunk by a German submarine, with the loss of all the cargo aboard. Surely it will be naivety flowing from the express wordings of s.1 to expect relief. 4.1.5. Received for Shipments bill of Ladings Another sore point of the 1855 Act was that it roundly ignored other categories of Bills of Lading including the received for shipment Bill of Lading and feted rather only the shipped Bill of Lading. It also paid scant regard to delivery notes and combined transport documents involving inland freight.26 4.1.6. Chain sales. Situations where the property in the goods moved from one buyer to another in a chain sometimes raise peculiar challenges. One example is where the rights to suit pass with the property on endorsement of the Bill of Lading but a subsequent buyer rejects the goods on a legitimate breach of contract by the intermediate buyer. Since the subsequent reversal occasioned by the rejection was not done upon or by reason of endorsement as to revert the already vested right to suit, the intermediate buyer may find himself stuck with the goods without a right of suit against the carrier.27 In the light of the foregoing, we can conclude that the primary technique adopted by the 1855 Act was flawed.

25

[1919] 1 K.B. 198 See generally (Haselgrove-Spurin, 2004) page 50. Ibid at page 51.

26

27

4.2. What effects if any did this state of affairs have on the law of COG? Sir Anthony Lloyd famously warned that unless the law was reformed to provide security traders may stop using English Law in preference to Dutch Law which was much more amenable to trade. 28 Despite these defects the 1855 Act held sway until the Gosforth29 decision thrust the Bill of Lading in the front burner and led to the English Law Commission Working Paper 11230 which though stayed action on reform was a guide lamp for the subsequent 1991 report31 that was instrumental in the passage of the 1992 Act. 4.0. Is the 1992 Act the complete panacea to all the difficulties in this area of the law?

The 1992 Act deserves adulation for its reformist agenda. But beyond the ovation ascribing the trait of omnipotence to it by saying that it is a complete panacea is an audacious hyperbole. A look at some of the most popular provisions of the Act reveal that the Act sounded the reformatory gong when it declared very early on that it was An Act to replace the Bills of Lading Act 1855 with new provision with respect to bills of lading and certain other shipping documents.32 The Act in s1 enlarges the scope of the applicability of the legal regime to include not just a Bill of Lading but a seaway bill; a ships delivery order; and a received for shipment Bill of Lading which is capable of transfer by indorsement by delivery or without indorsement as a bearer bill.33

28

See (Haselgrove-Spurin, 2004) at p. 47. [1986] LMCLQ 4. See generally (Great Britain. Law Commission., n.d.) (The Law Reform Commission and the Scottish Law Reform Commission, 1991) See the introductory text of the (UK Parliament, 1992)

29

30

31

32

Perhaps to reassure of its futuristic and reformist mind-set, the Act in s.1 (5) gives the Secretary of State power to make regulations concerning telecommunications and information technology improvements as regards the transactional use of documents subject to the Acts regime including the indorsement, delivery or other transfer of such documents.34 The reformatory nucleus is clearly visible in s.2 as the holder of a Bill of Lading or the person to whom delivery is to be made is deemed to have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract. This therefore removes the offending provision of the Bill of Lading Act, which stipulated that the rights of suit could only be transferred if property passed upon or by reason of the consignment or endorsement, solving the problems for financing banks which were created by the ruling in Sewell v Burdick35 S. 2 (2) (b) of the Act states that the rights of suit of the intermediate or original buyer are preserved upon reacquisition of the cargo in circumstances where the buyer rejects the goods or documents. Prof Girvin adumbrates that this section implements one of the Law Commissions principal recommendations which was that the lawful holder of a Bill of Lading should be entitled to assert contractual rights against the carrier, irrespective of the passing of the property in the goods.36 It has been judicially postulated by no less a jurist than Chao Hick Tin (JA), that the underlying purpose of s.2is to promote international trade and to facilitate the enforcement of rights by third parties against the carrier37 S.2 thus severs the causal link espoused in the Delfini between the passing of property and the transfer of contractual rights thereby unbundling the passing of property from the rights of suit.

34

This power is made subject however by virtue of s. 1(6) to either Houses of Parliaments power of annulment. See (Haliwell, n.d.) (Girvin, 2011) at P. 97. Para 8.19. UCO Bank v. Golden Shore Transportation Pte Ltd (2006) 1 SLR 1 at [40].

35

36 37

S.3 stipulates that any person who acquires rights from a Bill of Lading or sea waybill or ships delivery order) under S.2, also assumes any liabilities under the same document as if he had been party to the original contract of carriage. However, the liability regime can only be prompted on the act of demand of delivery of the goods or claim to enforce his rights. But as Millett LJ posited in the Berge Sisar38 there is no good reason why his liability should be additional to instead of in substitution for the liability of the previous holder of the bill; or why the latter should remain liable merely because he made a claim or demand Halliwell is of the view that this proviso was specifically added to the Act for the protection of banks holding Bill of Lading as pledgees. The Law Commission felt it necessary to do so in order to avoid the disastrous effect the automatic imposition of liabilities could have had on the role played Bill of Ladings in the financing of international trade.39 S.4. of the Act is of the effect that a Bill of Lading representing the goods to have been shipped on board a vessel, and signed by the master, shall be conclusive evidence against the carrier of such shipment. This creates a sort of statutory estoppel against the carrier from denying acts of his authorised agents. One is left to wonder though the policy justification for leaving seaway bills and delivery orders out of the contemplation of s.4.

5.0. What are the shortcomings of the 1992 Act? The shortcomings of the 1992 Act include: a. Scope of documents covered: The Act failed to make a comprehensive provision for multi-modal transport documents beyond the regime stipulated in s.2. For instance Merchant delivery orders or undertakings that the ship will deliver are not catered for.

38 39

Borealis AB v Stargas Ltd (The Berge Sisar) [1999] QB 863 (Haliwell, n.d.) p. 14.

b. The inadequacy of the Extinguishing provisions: There may be situations where breach of the contract causes loss to a person whose rights to sue have been extinguished. What happens in this scenario? S.2 (4) allows the lawful holder of the bill to exercise his rights of suit for the benefit of the party suffering the actual loss. However the transfer of the rights of suits says nothing about the method of quantification of damages.40 More importantly nothing in the act mandates a compulsion to do so. The non-mandatory hue of s. 2(4) is thus a potential source of exasperation for parties suffering actual loss whose rights have been extinguished.

c. Unresolved or hazy areas: There remain some hazy areas. What is the exact scope of the enforceability of rights between the carrier and the buyer? What is the effect of the exclusion clauses in the contract of carriage after the contract is transferred?

6.0. Reform Proposals There continues to be sea transport documents in the light of modern multimodal realities which still fall outside the scope of the Act, it is suggested that a subsequent amendment should bring these documents as far as possible within the contemplation of the Act. It is obvious that the language of the rights of suit provisions still leaves a lot to be desired. Imprecision is the precursor to uncertainty and uncertainty is bosom friends with chaos. Thus further amendments are necessary to bring clarity to the hazy areas and adequacy to the extinguishing concept. The Act allows the Secretary of State to make regulations applying its provisions to cases where EDI is used.41 But no regulation has been made so far despite the pace of technological development and the development of treaty law. The fact that an important issue such as this is left for administrative discretion reveals a timid approach. With the coming into effect of the Rotterdam rules, the time is ripe for domestic legislation to attain congruence with treaty law.
40

According to (Haselgrove-Spurin, 2004) at page 59 The courts could ask what has the buyer lost? conclude that he has

lost nothing and therefore award nominal damages!

41

s.1(5)

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