Background to the case
The cargo of coal was shipped on board the GIANT ACE in Indonesia in March 2018, under bills of lading on the CONGENBILL form. Original bills of lading were not available at the discharge ports, so the cargo was discharged into stockpiles at Indian ports in April 2018 against letters of indemnity issued to the carriers, KCH Shipping, by the vessel’s charterers.
Unbeknown to KCH Shipping, FIMBank had financed the purchase of the coal cargo by its customer and had been left unpaid under its financing arrangement. FIMBank therefore wanted to exercise what it considered to be its security for the financing by demanding delivery of the cargo under the bills of lading, of which it claimed to be the lawful holder. Unfortunately for FIMBank, by the time it tried to exercise its security, the cargo had already been discharged from the vessel and had been collected by local receivers. FIMBank therefore brought a claim in arbitration under the bills of lading. However, FIMBank only commenced arbitration against KCH Shipping on 24 April 2020, following an apparent misunderstanding over the identity of the carrier.
The arbitration
As a preliminary issue in the arbitration, KCH Shipping argued that FIMBank’s claim was time-barred because the arbitration was commenced more than 12 months after delivery of the cargo. KCH Shipping relied on the wording of Article III, r.6 of the Hague-Visby Rules, which 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,” and on The Alhani, mentioned above.
FIMBank argued that its claim was not time-barred because the alleged misdelivery in this case had happened after discharge and the Hague-Visby Rules did not apply after discharge. It followed there was no applicable 12-month time bar and that The Alhani did not apply. Although the question of whether or not the alleged misdelivery in this case happened after discharge remains undecided, KCH Shipping was content for the preliminary issue to be decided on the assumed basis that delivery happened after discharge.
The questions for the High Court
The arbitration tribunal agreed with KCH Shipping that the claim was time-barred, and FIMBank brought an appeal to the High Court under section 69 of the Arbitration Act 1996 on two grounds:
- That the 12-month time bar from Article III, r.6 of the Hague-Visby Rules does not apply to claims for misdelivery where delivery takes place after discharge
- That the 12-month time bar does not apply where the CONGENBILL form of bill of lading is used, because of the specific wording of clause 2(c) of that bill of lading
Does the 12-month time bar under the Hague-Visby Rules applies to misdelivery, even where delivery is after discharge?
The Court reviewed the authorities and found there was no previous English decision directly on this point. The High Court had decided in The Alhani that the time bar created by Article III, r.6 of the Hague Rules applies to claims for misdelivery where discharge and delivery happen at the same time but had not decided whether the same applied when delivery occurred after discharge.
The Court considered the Commonwealth authorities and textbooks on bills of lading, but these were not consistent on whether the 12-month time bar in the Hague-Visby Rules should apply where delivery occurs after discharge.
The Court found there was support in the Court of Appeal’s judgment in The MSC Amsterdam ([2007] EWCA Civ 794) to the effect that parties to bills of lading may have impliedly agreed that the obligations and immunities contained in the Hague or Hague-Visby Rules continue after actual discharge until the goods are taken into the custody of the receiver (i.e., that such rights and immunities include the time bar and that they continue to apply until delivery).
After hearing the arguments, the Court decided on policy grounds that the 12-month time bar in Article III, r.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. Further, the Court 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.
Does the wording of the bill of lading on the CONGENBILL form alter the position under the Hague-Visby Rules?
Clause 2(c) of the commonly used CONGENBILL form of bill of lading used in this case said, “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.”
FIMBank argued that this wording limited the application of the Hague-Visby Rules under the bill of lading to the period up to and including discharge, and disapplied the Hague-Visby Rules thereafter, and therefore meant that the time bar did not apply to a misdelivery after discharge. The Court disagreed and found it would be counter-intuitive that a clause that is intended to relieve the carrier of liability for loss of or damage to the cargo after discharge should have the effect of depriving the carrier of the benefit of a time bar that would otherwise be available, particularly given the objective of the time bar is to enable the carrier to clear its books. The Court also thought this was not a case like The MSC Amsterdam, where the wording of the bill of lading made it clear that the parties did not intend the Hague-Visby Rules to apply after discharge from the vessel.
The effect of this decision
The effect of this decision is that:
- Claims for misdelivery under a bill of lading must be brought by commencing proceedings within 12 months of delivery of the cargo where English law and the Hague-Visby Rules apply, unless there are clear words in the bill of lading altering this position. Failure to do so will mean the claim is time-barred.
- The issuer of a letter of indemnity for discharge of cargo in absence of bills of lading in the above circumstances may take some comfort if the carrier they are indemnifying is not subject to any proceedings for misdelivery within 12 months of delivery, as any subsequent claim for misdelivery is likely to be time-barred.
Client Alert 2022-354
