TT Talk – Legal eagle: not a bill of lading
An interesting Singapore case that investigates what relationship there is between contracts of sale and contracts of carriage. In the circumstances, it was impossible for holders of the bills of lading to attribute the traditional characteristics where the sale contract was silent.
Cargoes of bunkers were loaded onto bunker barges, including the Luna, at Singapore for on-loading onto oceangoing ships. Bills of lading were issued by the Singapore terminal and subsequently signed by the masters of the barges.
After loading the bills were sent to the shippers, who were also the sellers. The barges discharged the bunkers onto the oceangoing ships, without presentation of the bills, which were retained by the shippers pending payment for the bunkers within a 30 day credit period.
The buyers became insolvent without paying for the bunkers. The shippers claimed against the barges, on the basis that, as holders of the bills, they were entitled to delivery.
The first instance court found that the bills of lading had contractual force. Therefore the shippers, as holders, were entitled to possession. This was in spite of the fact that the documents lacked the traditional qualities of a bill of lading. In particular, there was no obligation under the sales contract for the bills to be presented when the bunkers were discharged onto the oceangoing ships, and the buyers were not expecting to receive the bills in order to claim delivery, as the shipper would ordinarily hold on to the bills until they were paid.
This surprising first instance decision was overturned on appeal. The Court of Appeal held that the bills of lading in question were basically receipts, rather than documents of title or contracts of carriage.
A bill of lading is normally distinct from, and should be interpreted independently of, an underlying contract of sale. However the court here was considering, not how a contract evidenced or created by the bills of lading was to be interpreted, but whether any contract at all was evidenced or created. There is ample precedent (including English precedent) that this question of formation, rather than interpretation, requires consideration of the wider background and the objective intentions of the parties. This can be demonstrated by custom and accepted mode of performance.
The sale contracts made no mention of the bills of lading. Payment was to be made against a commercial invoice, together with a certificate of quality which had been issued by the terminal at the same time as the bill of lading. The shippers therefore looked to the buyers for payment. The bills of lading were not intended as security against the risk of non-payment, and were irrelevant generally to the payment process. The bills were therefore not documents of title.
The bills did not specify a discharge port, relying instead on the phrase “bunkers for ocean going vessels”. The shippers knew that the bills could not be used to specify a port, and were not intended for presentation in order to gain possession of the bunkers. The shippers also knew that, under the sale contract, the buyers, not the shippers as holders of the bills, were entitled to give instructions for delivery to the oceangoing ships. The bills therefore had no force as contracts of carriage.
This decision highlights that, if a party wishes to rely on a bill of lading as a document of title or evidence of a contract of carriage, the underlying sales contract must be structured to allow this. It also reinforces the court’s right to examine the sale contract and the transportation arrangements in deciding whether a contract exists.
Source: TT Club