P & O Nedlloyd B.V. v Utaniko Ltd.

Transfer of a bill of lading to an agent under the Carriage of Goods by Sea Act 1992 transfers the contractual rights of suit. It does not automatically extinguish the owner’s possessory rights or rights in bailment.

A carrier who entrusts goods to a warehouse operator or other sub-bailee must take reasonable care to preserve the governing bailment. Where delivery requires an original bill of lading, the carrier must arrange for its contractor to impose that requirement. Failure to do so may constitute a causative breach of duty.

The owner’s non-contractual rights remain subject to bill-of-lading terms under the doctrine of bailment on terms. An exclusion directed at physical risks after discharge does not ordinarily cover failure to arrange delivery against an original bill.

Two related shippers sent containerised goods from Hong Kong to San Antonio under negotiable bills of lading issued by Maersk Line and P & O Nedlloyd. Chilean banks were named as consignees and received the bills as collection agents for the shippers. The goods remained the shippers’ property. Warehouse operators released the containers to the buyer’s customs agent without production of the bills, and the buyer failed to pay for several consignments.

Thomas J tried the related Commercial Court proceedings together. He held that the contractual rights had passed to the banks under the Carriage of Goods by Sea Act 1992, but that the shippers could recover in negligence for permanent deprivation of their property. The carriers appealed against liability. The shippers relied by respondents’ notice on contractual, agency, bailment and proprietary grounds.

The central issues were whether the shippers retained rights in bailment, whether the carriers breached their duties when arranging warehousing and release, and whether the bills’ post-discharge exclusions protected the carriers.

1. Appeals dismissed unanimously. Lord Justice Mance gave the judgment, with which Lord Justice Laws and Lord Justice Brooke agreed. The Commercial Court’s judgments and orders were upheld, although partly for different reasons.

2. The Chilean banks became lawful holders of the bills. The contractual rights of suit therefore vested in them under section 2(1) of the Carriage of Goods by Sea Act 1992. The shippers could not sue on the contracts as undisclosed principals because they sought to exercise rights which they had themselves made and which statute had transferred to their agents.

3. The shippers had nevertheless been the original bailors. That bailment continued after transfer of the bills and contractual rights to the banks. The 1992 Act expressly transfers contractual rights, but it does not automatically and exclusively transfer rights in bailment. The banks acted only as collection agents, while the shippers retained ownership and a sufficient immediate right to possession. Alternatively, permanent and effective deprivation of the goods injured the shippers’ reversionary proprietary interests and supported a claim governed by principles analogous to bailment.

4. A bailee’s duty is not exhausted by exercising care while goods remain in its physical custody. A bailee who entrusts performance to another must take reasonable care to ensure that the resulting arrangements respect the original bailment. In this maritime context, that required arrangements or instructions ensuring that the warehouse operators or port agents released the goods only against an original bill of lading.

5. The carriers failed to make those arrangements. They thereby exposed the goods to abstraction by persons without entitlement. The judge was entitled to find that this was negligent and causative of the losses. It was unnecessary to determine the alternative claim in conversion.

6. The shippers’ claims remained subject to the bills’ protective terms under the doctrine of bailment on terms. On their proper construction, however, both sets of bills were combined-transport bills. The post-discharge exclusions relied upon therefore had no relevant application.

7. Even had those exclusions applied, they addressed physical risks associated with the period after discharge. They did not cover the carriers’ fundamental failure to arrange delivery only against an original bill of lading. The appeals accordingly failed.

1. Court of Appeal (Civil Division): By [2003] EWCA Civ 83, unanimously dismissed both carriers’ appeals and upheld the judgments and orders below, although partly for different reasons.
2. Queen’s Bench Division (Commercial Court): Thomas J entered judgment for the two claimant shippers on 7 February 2002. He awarded respectively $134,807.41 and $95,147.20, together with interest and costs. No neutral or report citation is stated.