Background to the case
A cargo of coal was shipped on the vessel GIANT ACE in March 2018 under bills of lading on the CONGENBILL form. Original bills of lading were not available at the discharge ports in India, so the cargo was discharged into stockpiles in mid-April 2018 against letters of indemnity issued to the carriers, KCH Shipping, by the charterers.
FIMBank had financed the purchase of this cargo, but was left unpaid under its financing arrangement. FIMBank therefore wanted to exercise what it alleged to be its security for financing the cargo by demanding delivery under the bills of lading. By the time FIMBank tried to exercise its security, the cargo had already been discharged from the vessel and collected from stockpiles at the Indian discharge ports by local receivers. FIMBank was left empty-handed and therefore brought a claim in arbitration against the carriers, KCH Shipping, under the bills of lading. However, FIMBank only commenced arbitration against KCH Shipping on 24 April 2020 - over 2 years after discharge. The issue of time bar was dealt with as a preliminary issue in the arbitration.
The timing of a misdelivery of a cargo is significant: an unappealable decision by the High Court in The Alhani ( EWHC 1495 (Comm)) confirms that the 12-month time bar applies where misdelivery of cargo occurs at the time of discharge from the vessel. Before the High Court’s decision on GIANT ACE, there had not been an English court decision on the common scenario where a cargo is misdelivered at some point after discharge (for example where it may have been in a stockpile or storage location in the carrier’s custody, pending collection by a receiver. KCH Shipping was content for the preliminary time bar issue to be decided on the assumed basis that misdelivery happened after discharge.
Both the arbitration tribunal and the High Court previously decided that FIMBank’s claim was time-barred because the 12-month time bar at Article III, Rule 6 of the Hague-Visby Rules applied, even assuming that the misdelivery happened after discharge. Article III, Rule 6 says “the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered”. FIMBank had argued unsuccessfully that its claim was not time-barred because the alleged misdelivery in this case had happened after discharge and the Hague-Visby Rules, including the time bar at Article III, Rule 6, did not apply after discharge. Fimbank therefore argued that there was no applicable 12-month time bar.
The arbitration tribunal and the High Court decided on policy grounds that the 12-month time bar in Article III, Rule 6 does continue to apply after discharge until delivery, both to enable the carrier to “close his books,” and to avoid the need for fine distinctions as to the point when discharge ends and delivery begins.
The High Court also agreed with the arbitration tribunal that the bill of lading contained an implied term that the Hague-Visby Rules regime (including the time bar) applied up to and including delivery in any event. Nothing in the CONGENBILL form of bill of lading used in this case altered that conclusion.
The questions for the Court of Appeal
FIMBank obtained permission to appeal to the Court of Appeal on two grounds giving rise to the followings questions:
- Does the 12-month time bar within Article III, Rule 6 of the Hague-Visby Rules apply to claims for misdelivery where delivery in fact takes place or after discharge?
- Does the 12-month time bar apply even where the CONGENBILL form of bill of lading is used, because of the specific wording of clause 2(c) of the CONGENBILL form of bill of lading which states “The Carrier shall in no case be responsible for loss and damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel of [which must mean “or”] while the cargo is the charge of another Carrier, nor in respect of deck cargo or live animals.”?
The Court of Appeal’s decision
The Court of Appeal decided that FIMBank’s claim was time barred because Article III, Rule 6 of the Hague-Visby Rules applies to claims for misdelivery of cargo after discharge, and because clause 2(c) of the CONGENBILL form does not disapply Article III, Rule 6 from the period after discharge.
In coming to its decision on the interpretation of the time bar at Article III, Rule 6 of the Hague-Visby Rules, the Court of Appeal held that the Rules should be interpreted in accordance with the principles set out in the Vienna Convention on the Law of Treaties 1969. The Vienna Convention required the Court to interpret the Hague-Visby Rules “in accordance with the ordinary meaning to be given to the terms … in their context and in the light of its object and purpose”. ‘Preparatory works’ towards the final draft may be referred to where a meaning is ambiguous, but nothing less than a “bull’s eye” indisputably pointing to a definite legal intention in the preparatory works would do.
The preparatory works for the Hague-Visby Rules were recorded and published in a set of records of the drafting committees called the ‘travaux préparatoires’.
The Court of Appeal found that instances where delivery happens after discharge are the ‘paradigm’ case in modern shipping. Therefore the drafters of the Hague-Visby Rules must have had this scenario in mind in the travaux préparatoires. The Court also found that the travaux préparatoires to the Hague Visby Rules make it clear that the object and purpose of the drafters of the revised wording in the Hague Visby Rules was to extend the application of the time bar at Article III, Rule 6 of the Hague-Visby Rules to claims for non-delivery or misdelivery occurring after discharge.
In light of this “bull’s eye”, the Court of Appeal decided that the broad wording of the time bar at Article III, Rule 6 of the Hague-Visby Rules (compared to the narrower time bar wording that appears in the older Hague Rules) was intended to and therefore does apply to claims for misdelivery after discharge.
The Court of Appeal also decided there was nothing in clause 2 (c) of the bill of lading that disapplied the Hague-Visby time bar to misdelivery claims after discharge. Clause 2 (c) either completely excluded the carrier’s liability for misdelivery (in which case FIMBank would not have a claim), or KCH Shipping remained liable for misdelivery after discharge in spite of clause 2 (c). FIMBank’s claim was therefore time-barred.
The impact of this decision
- Trade finance banks that rely on bills of lading as security will need to be aware that a 12-month time bar will apply even where cargo is discharged into storage which they consider to be in the custody of the carrier pending ultimate delivery. They should therefore make sure to diarise 12 months from discharge regardless of when “delivery” is intended to take place;
- Shipowners who issue bills of lading will be able to benefit from ‘closing their books’ based on the 12-month time bar applicable under the Hague-Visby Rules; and
- Traders who indemnify carriers against the consequences of discharging without bills of lading (by issuing letters of indemnity) will likewise take some comfort if the carrier they are indemnifying is not subject to any proceedings for misdelivery within 12 months of when delivery should have happened, as any subsequent claim for misdelivery is likely to be time-barred.
Client Alert 2023-118