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Cargo claims and title to sue under the bills of lading

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Sevylor v. Altfadul & SIAT (Baltic Strait) [2018] EWHC 629 (Comm) 

This case considers the extent of the damages that a bill of lading holder, as receiver of damaged goods, can claim from shipowners, in circumstances where the vessel’s charterers have already paid the receivers partial compensation for the cargo damage. The judgment also clarifies the applicability of sections 2(1) and 2(4) of the Carriage of Goods by Sea Act (COGSA) 1992 in these circumstances.

The background facts

The Owners voyage chartered their vessel to CoMaCo to carry a cargo of bananas from Ecuador to Libya. CoMaCo sold the bananas to Altfadul and the cargo was insured by SIAT. Bills of lading were issued, naming Altfadul as consignees, and Altfadul received the cargo at the discharge port. On discharge, it was discovered that the bananas had spoiled during the voyage and this had caused the cargo to lose around US$4.5m in value.

Altfadul sued CoMaCo under the sale contract for their losses and CoMaCo agreed to give credit to Altfadul US$2.5m (to be spread over three further shipments). This was the same sum as SIAT’s insurance pay-out to CoMaCo and was found by the arbitrators to have been credited by way of settlement. As part of the settlement, Altfadul assigned their rights to sue the Owners under the bills of lading to CoMaCo who, in turn, assigned the claim to SIAT.            

Altfadul (with the claim being brought by their assignees, SIAT) sued the Owners for US$4.5m under the bills of lading.

In arbitration, the Tribunal found that the cargo damage had been caused by the Owners’ breach of the contract of carriage and awarded Altfadul the entire US$4.5m. The Owners appealed this decision, claiming that, in assessing the damages owed to Altfadul, credit had to be given for the US$2.5m promised by CoMaCo to Altfadul.

The Commercial Court decision

The Common Law Claim

The first issue considered by the Commercial Court was whether, under the common law, Altfadul (and, therefore, SIAT) was entitled to damages equal to the full value of the cargo damage, irrespective of any recovery that they made from their seller, CoMaCo

The Court concluded that the answer was yes: the bananas were damaged and this damage had been caused by the Owners’ breach of contract.  If the bananas had not been damaged, then Altfadul would have had bananas that were worth US$4.5m more. Therefore, Altfadul had suffered loss in this amount and, as between the Owners and Altfadul, it was irrelevant whether CoMaCo, as seller, had agreed to give credit to Altfadul in respect of Altfadual’s claim under the sale contract for the same damage. Altfadul were, therefore, entitled to claim the full US$4.5m.

Claims under COGSA 1992

If Altfadul had not succeeded on this point, then the claim would have been advanced under sections 2(1) and 2(4) of COGSA 1992, which provide as follows:

2. Rights under shipping documents.

(1) Subject to the following provisions of this section, a person who becomes—

(a) the lawful holder of a bill of lading;

(b) the person who (without being an original party to the contract of carriage) is 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; or

(c) the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,

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 that contract…

4) Where, in the case of any document to which this Act applies—

(a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but

(b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person,

the other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised.

Under these statutory provisions, Altfadul claimed its own loss of US$2m (being US$4.5m minus CoMaCo’s US$2.5m credit) and CoMaCo’s loss of US$2.5m. This was on the basis that Comaco had sustained the US$2.5m loss due to the Owners’ breach of the contract of carriage, and Altfadul, (as holder of the bills of lading and the person with title to sue) could recover CoMaCo’s loss to the same extent that CoMaCo could claim if they had the right to sue under the bills of lading.

The Owners advanced two arguments in defence of the COGSA claim, being:

1.  For s. 2(4) to operate, it was necessary for the party who had suffered a loss (CoMaCo) to have, at some point, had rights of suit under the bill of lading vested in it and then lost those rights by operation of s.2(1).

The Court said no: there simply needed to be loss or damage to a party, with an interest in the goods to which the bill of lading related, that was caused by a breach of that contract of carriage, with the rights of suit in respect of that breach being vested in another party. There was nothing in COGSA 1992 to further narrow down the rule to require that the party suffering the loss previously had the right to sue under the bills of lading.

2.  The bill of lading holder could not pursue losses under s. 2(4) where the person who suffered the loss was the charterer of the vessel and, where it became the holder of the bill of lading, would not itself have had rights against the carrier under that bill of lading.

The Court found that Altfadul was entitled to recover CoMaCo’s losses to the same extent as CoMaCo would have been entitled to recover if CoMaCo held the bills of lading. However, as CoMaCo were the voyage charterers, in their hands the bills of lading were a ‘mere receipt’ for the goods.  Consequently, CoMaCo would not have been able to claim the US$2.5m paid to Altfadul from the Owners under the bills. Accordingly, although s. 2(4) allowed Altfadul to claim on CoMaCo’s behalf, the US$2.5m loss could not be recovered on this basis.

Comment

This case demonstrates that the courts will not reduce damages for a cargo claim under a bill of lading to take account of a settlement under a sale contract. The judgment also establishes that s. 2(4) of COGSA only allows the bill of lading holder to claim on behalf of a voyage charterer for losses that the voyage charterer would have been able to claim if it held the bills of lading. In many circumstances, the bills of lading will be a ‘mere receipt’ in the hands of a voyage charterer and so their losses will not be recoverable under the bills of lading. To recover their losses, the voyage charterer would have to bring a claim against the owners under the voyage charterparty.

Jamila Khan

Jamila Khan Partner and Head of Office, Piraeus

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