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STRIKING OUT MISDELIVERY CLAIMS Lim Tean Partner Rajah & Tann.

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Presentation on theme: "STRIKING OUT MISDELIVERY CLAIMS Lim Tean Partner Rajah & Tann."— Presentation transcript:

1 STRIKING OUT MISDELIVERY CLAIMS Lim Tean Partner Rajah & Tann

2 One of the biggest problems tanker owners face is the practice of having to deliver the cargo against a Letter of Indemnity. In the tanker trade, delivery against LOI and not a Bill of Lading is the norm rather than the exception. The difficulty is that the LOI may often turn out to be worthless. Defences such as, it is the custom of the port to deliver against an LOI, have rarely succeeded. A better approach may be to examine the Bill of Lading trail closely to see if the claimant has been transferred rights of suit. The presentation today will focus on 2 recent Singapore decisions which illustrate this approach.

3 The 2 cases are :- Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore UCO Bank v Golden Shore Transportation [2005] SGHC 65, 5 April 2005

4 In Singapore, our Bills of Lading Act (BLA) was adopted from, and is in pari materia with, the English Carriage of Goods by Sea Act 1992 (COGSA 1992).

5 Under s2(1) of the BLA, a person who becomes the lawful holder of the B/L shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to the contract.

6 s2(5) provides that :- Where rights are transferred by virtue of the operation of subsection (1) in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives :- (a) where that document is a bill of lading, from a persons having been an original party to the contract of carriage; or (b) in the case of any document to which this Act applies, from the previous operation of that subsection in relation to that document …

7 Another important section is s5(2) of the Act which provides :- References in this Act to the holder of a bill of lading are references to any of the following persons : (a)a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates; (b)a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill, or, in the case of a bearer bill, of any other transfer of the bill; and a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith.

8 How does a transferee to a BL obtain rights of suit?

9 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore The appellants (Bandung) were the owners of the vessel Victoria Cob. The respondents (KTL) were bankers in Singapore. Two bills of lading (BLs) were issued by Bandung for a shipment of cargo by Shweta International Pte Ltd (Shweta) on board the vessel. Shweta had sold the cargo to Ranchhoddas Purshottam Holdings (RPH), indorsing the BLs in blank and delivering them to RPH who, in turn, sold the cargo to Lanyard Foods Ltd (Lanyard). Thereafter, RPH, through its own bankers, delivered the two B/Ls to Keppel TL for negotiation, without filling in any name onto the indorsement made in blank by Shweta.

10 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore KTL subsequently filled in the name the State Bank of Saurashtra in India (State Bank) onto the blank endorsement made by Shweta and forwarded the two BLs to the State Bank to hold the same for collection by Lanyard. However, Lanyard never paid for the cargo. The two BLs were duly returned by the State Bank to KTL. No indorsement was made by the State Bank o the BLs either in blank or specially in favour of KTL. Upon receipt of the BLs, KTL stamped the word cancelled over the indorsement in each of the two BLs. In the meantime, the vessel discharged the cargo to the agents of Lanyard without the production of the BLs.

11 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore KTL brought an action against Bandung, claiming they were the lawful holders or indorsees of the two BLs and thus entitled to ownership of the cargo. Bandung applied successfully before the deputy registrar to have the action struck out under O 18 r 19(1)(a)-(d) of the Rules of Court.

12 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore The Singapore Court of Appeal held that where a BL had been indorsed in blank, it became like a bearer bill. It could be transferred simply by delivering the BL to the intended transferee without further indorsement. However, where the BL was specially indorsed, the indorsee must indorse it either specially or in blank if he wished to transfer it to another party. If this further indorsement was in blank, then the BL would function like a bearer BL.

13 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore The character of the BL changed from a bearer BL to one transferred specifically to State Bank when the name State Bank was inserted onto the blank endorsement in the BL. State Bank became the lawful holder thereof, and in turn acquired the rights of suit pursuant to s 5(2)(b) of the Bills of Lading Act. KTLs rights had been extinguished upon the transfer.

14 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore State Bank could further transfer the BL but to do so it must indorse the BL over, either to a specific transferee or in blank. However, State Bank returned the BL to KTL without making any indorsement. This indorsement was crucial to enable KTL to become the lawful holder again.

15 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore KTL could not improve their position by canceling the indorsement made in favour of State Bank. The rights of suit had passed to State Bank and until State Bank transferred such rights of suit back to KTL, KTL has no rights of suit. Physical possession of a BL does not constitute the holder the lawful holder; there must be a valid indorsement.

16 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore The rights under a BL operated independently of the banking arrangements which any of the holders of the BL in the chain may have with his bankers. The court does not look behind a BL to determine who is entitled to delivery. A carrier is entitled to deliver the cargo against presentation of the BL without inquiry as to the way in which the presenter of the BL acquired property in the goods.

17 Bandung Shipping Pte Ltd v Keppel TatLee Bank [2003] 1 SLR 295 Court of Appeal Singapore If a person who transfers the BL were to retain rights, it would enable him to undermine the security of the new holder and expose the carrier to inconsistent claims. Thus, KTL could not argue that they had no intention to vest the rights of suit in State Bank. KTLs claim was struck out.

18 How does a person become a lawful holder of a BL?

19 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The contract was for a carriage of logs from Malaysia to India. Defendant shipowner made out 4 bills of lading to the order of the Plaintiff-UCO Bank. Shippers were 3 other Malaysian companies. The Buyers were SOM International, customers of the plaintiff bank. SOM arranged with the defendant to issue switch BLs for the cargo. SOM was named as shipper in these bills.

20 UCO Bank v Golden Shore Transportation [2005] SGHC 65 SOM indorsed these switch BLs and presented them to end receivers of the cargo to take delivery. Delivery was given. Defendant issued the switch bills without first retrieving original bills.SOM promised to return the originals and gave a letter of undertaking for this purpose. Plaintiff sued the Defendant for delivering the logs without production of the original BL which had been in Plaintiffs possession as consignees and/or lawful holders.

21 UCO Bank v Golden Shore Transportation [2005] SGHC 65 SOM opened letters of credit with plaintiff bank to finance the shipment. The letters of credit were irrevocable and negotiable. Shippers presented the relevant drafts and shipping documents to HSBC (the negotiating bank) to obtain payment. HSBC negotiated the drafts. The shippers had not indorsed the original BL to HSBC. HSBC had presented the documents to the plaintiffs as issuing bank.

22 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The original BL were forwarded to the Plaintiff without any indorsement, either specifically or in blank. Plaintiff paid HSBC but SOM did not reimburse the plaintiff.

23 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The preliminary issue was whether the plaintiff bank had title to sue the defendant shipowner. Under section 2(1)(a) of the Singapore Bills of lading Act, the lawful holder of the original bills would have rights of suit.

24 UCO Bank v Golden Shore Transportation [2005] SGHC 65 Section 5(2) states that the holder of the bill of lading is either a person with possession of the bill, who by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates or person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill.

25 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The Plaintiff Bank submitted that since the bills were made out to the order of the Plaintiff, mere delivery of the BL by HSBC was sufficient to enable the Plaintiff Bank to sue the Defendant Shipowner. Delivery of the BL would mean possession. It was not necessary for shippers to indorse the original bills before delivery for the bank to become the lawful holder.

26 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The shipowners submitted that only actual possession following indorsement and delivery could render the plaintiff the lawful holder of the original bill. The Judge said that the imposition of HSBC as the negotiating bank altered the otherwise generally held view. The generally held view is that a BL made out to the order of the consignee would be capable of transfer by its original holder (i.e. the shipper or on its behalf) to the consignee without any indorsement.

27 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The shippers did not use HSBC as their agent to present the documents for collection of payment. The shippers, having sold the drafts to HSBC as the negotiation-bank, were not looking to be paid under the letters of credit by the issuing bank. HSBC, as the negotiating-bank, paid the shippers. The negotiation-banks presentation of the drafts and shipping documents to the plaintiff for reimbursement was made under a different and independent contract between HSBC and the plaintiff.

28 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The mere naming of the party in the bill as consignee gives that party so named no rights under the contract. The plaintiff had no rights of suit simply because they were the named party on the bill of lading.

29 UCO Bank v Golden Shore Transportation [2005] SGHC 65 The language of the Act requires a consideration of how the bill was acquired. Section 5(3) talks of possession of the bill and this can be read to imply that delivery of the bill is required. Thus Section 5(2) must be concerned with something more than actual physical possession.

30 UCO Bank v Golden Shore Transportation [2005] SGHC 65 For the shipper to have transferred rights of suit to HSBC would have required the Shippers indorsing and delivering the original Bills to HSBC. The is nothing wrong in principle against the shipper indorsing and delivering the original BL to HSBC although they were made out to the order of the Plaintiff bank. The consequence of the shipper changing the named consignee by indorsement is that the bill of lading made out to order of a consignee may be varied by indorsement so as to take the case out of s 5(2)(a) into s5(2)(b).

31 UCO Bank v Golden Shore Transportation [2005] SGHC 65 Belinda Ang J said that title to sue derives from enquiring whether the BL is lawfully held. A holder is defined in s 5(2). S 2(1) speaks of a person who becomes a lawful holder and by virtue of becoming the holder of the Bill shall have transferred and vested in him all rights of suit. The language used requires a consideration of how the Bill was acquired.

32 UCO Bank v Golden Shore Transportation [2005] SGHC 65 An original shipper who is party to a contract contained in or evidenced by a bill of lading remains entitled to all the rights thereunder until he effects a transfer of it to a lawful holder of the bill of lading whereupon he is divested of his rights. This can be read to imply that the initial delivery in the case of s 5(2)(a) would be from the shipper or on the shippers behalf to the named consignee. On the facts of this case, the original bills were not transferred from or delivered by the shippers to the plaintiff nor was HSBC acting on the shippers behalf when the original bills were presented to and accepted by the plaintiff. In the absence of any indorsement by the shippers, s 5(2)(b) also did not apply.

33 UCO Bank v Golden Shore Transportation [2005] SGHC 65 For the purposes of the Act, in the hands of HSBC (neither as consignee or indorsee), the original bills would not fit within the definition of bill of lading in s 1(2) although they were described as such by name. It is because they were incapable of transfer either by indorsement or, as a bearer bill, by delivey without indorsement.

34 UCO Bank v Golden Shore Transportation [2005] SGHC 65 As they would not count as bills of lading, they could not be the means upon which rights of action could be transferred under the Act. HSBC would not have qualified as a holder so much so that when HSBC sent the documents to the plaintiff, it was not passing on anything like a bill of lading as defined by s 1(2)(a). The presentation of the shipping documents to the plaintiff would equally have been incompetent and hence ineffective. The Plaintiffs claim was struck out.

35 THE END


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