Giant Ace – Article III, rule 6 is a cuckoo in the Hague-Visby nest

Posted: 15/09/2023

A bill of lading is a document of title and, thus, liability for mis-delivery is strict. It does not matter why the ocean carrier delivers a cargo to the wrong party in the absence of the bill. Proof of reasonable diligence will not avail the carrier. Indeed, there are very few conceivable defences to a claim for mis-delivery.

One such possible defence, if the facts support it, is that the claim has become time-barred. However, while it is well-known that the Hague-Visby Rules apply a one-year time limit for cargo claims, those rules normally only apply to the period of ocean carriage, along with any loading and discharging obligations the carrier has agreed to undertake.

Contrastingly, in most mis-delivery cases, the cargo is stored by the carrier after discharge from the ship. In due course, the carrier’s agent releases the warehoused cargo to a third party who is not the lawful bill of lading holder, often in consideration for a letter of indemnity. Once the true bill of lading holder comes to light, whether this be a bank or other party in possession of the bill, they are then in a position to press a claim for mis-delivery.

In such circumstances, the mis-delivery would occur beyond the Hague-Visby period of responsibility and therefore beyond the normal scope of application of the rules. The question of whether the Hague-Visby one-year time limit applies to the mis-delivery claim regardless is the subject of a recent decision of the Court of Appeal in the Giant Ace [2023] EWCA Civ 569. 

The dispute concerned a cargo of 85,510mt of coal, which the vessel carried under Congenbill 1994 bills of lading and discharged at Jaigarh, India between 1 and 18 April 2018. FIMBank plc had financed the purchase of the cargo and accordingly become the lawful bill of lading holder. However, the bank had been unable to collect payment.

As the cargo was wrongly delivered to another party during April and May 2018, apparently in consideration for a letter of indemnity, FIMBank brought a claim against the bill of lading carrier for mis-delivery. However, the bank only served a notice of arbitration on the vessel owners on 24 April 2020, significantly more than a year after the subject events.

It was common ground that the Hague-Visby Rules applied to the carriage, of which article III, rule 6 sets out the time limit: 

‘…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.’

If article III, rule 6 encompassed liability for a mis-delivery occurring after the Hague-Visby period of responsibility, FIMBank’s claim would be time-barred. If it did not, then the ordinary six-year limitation period for a contract claim would apply under section 5 of the Limitation Act 1980, and so the bank would have commenced arbitration in good time.

The judgment of the Court of Appeal was given by Lord Justice Males. The wording of article III, rule 6 of the Hague-Visby Rules, interpreted purely on its own terms, would have led the judge to find that the time limit should only apply to mis-delivery claims arising during the Hague-Visby period of responsibility. However, it was apparent from decisions of other international courts that the equivalent provision in the earlier Hague Rules 1924 had precisely that effect, even though it was more narrowly worded:

‘In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.’

As Lord Justice Males put it, ‘Article III, rule 6 is not a cuckoo in the Hague Rules nest.’

It logically followed that further investigation was required to ascertain the purpose behind the alteration to the wording of the rules. In this regard, article 32 of the Vienna Convention on the Law of Treaties provides that recourse may be had to the preparatory work of an international convention if the meaning of the convention is otherwise ambiguous.

It was apparent from the Hague-Visby travaux preparatoires that a key purpose of rewording article III, rule 6 was to give the text as wide as possible a bearing and ensure that the one-year period applied to mis-delivery claims. It being a rare occurrence for cargo to be delivered to the bill of lading holder at the time of discharge, Lord Justice Males was willing to infer that the draftspersons must correspondingly have intended article III, rule 6 to apply to mis-delivery claims arising even after the Hague-Visby period of responsibility. The revision to article III, rule 6 would otherwise fail to capture the majority of such claims, contrary to its documented purpose.

The Giant Ace is the second Court of Appeal decision within a month involving a mis-delivery claim unsuccessfully pursued by a financing bank. The court’s judgment in the Sienna [2023] EWCA Civ 471 demonstrates that the bank’s claim will also fail if it would have consented to the mis-delivery in any event. Similarly, the High Court of Singapore recently refused to give summary judgement in both the STI Orchard [2023] 1 Lloyd’s Rep 22 and the Maersk Princess [2023] 1 Lloyd’s Rep 508 in view of the possibility of such a causation defence.

Most of the world’s ocean cargo is routinely discharged in breach of the bill of lading contract; a situation popularly attributed to the limitations of paper. Apparently, the use of electronic bills should enable the bill of lading to work through the documentary chain in time to meet the ship, thereby obviating the use of letters of indemnity, assuming of course that financing institutions do not hold back the bill regardless. With the uptake of such technology so long-awaited, this fortuitous spate of recent judgments is an intriguing coincidence but will surely hardly measure in incentivising banks towards alternative modes of security.

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