Standard Chartered Bank v Dorchester LNG & Anor (Rev 1)

Under section 5(2)(b) of the Carriage of Goods by Sea Act 1992, completion of an indorsement by delivery requires more than physical possession. The holder must voluntarily and unconditionally transfer possession, and the indorsee must unconditionally accept it. A bank that rejects bills of lading on presentation cannot unilaterally accept them later without the indorser’s consent. If the beneficiary nevertheless accepts payment of the credit’s face value without retaining the documents, the transfer may occur against payment and vest the rights of suit in the bank. The transfer may still qualify under section 2(2)(a) if made pursuant to the original credit arrangement, despite expiry of the credit or delay in payment.

Standard Chartered Bank sued the owner of the Erin Schulte for misdelivery after cargo was discharged without production of the bills of lading. The bills had been indorsed in favour of the bank and presented under a letter of credit. The bank rejected the documents, but later paid Gunvor the face value of the credit, interest and costs after Gunvor commenced proceedings.

Teare J held that the bank became holder on presentation and, alternatively, on payment. He also held that the statutory requirements concerning a transfer after the right to possession had ceased were satisfied. The central questions on appeal were whether rejection prevented completion of the indorsement on presentation and whether the later payment transferred the rights of suit under sections 2(2)(a) and 5(2)(b) of the Carriage of Goods by Sea Act 1992.

1. Appeal dismissed. Moore-Bick LJ, with Briggs LJ and Sir Bernard Rix agreeing, held that section 5(2)(b) requires a voluntary and unconditional transfer of possession by the holder and unconditional acceptance by the indorsee. Indorsement alone is inchoate and remains revocable until delivery.
2. SCB’s possession on 4 June 2010 was for examination under the letter of credit. It rejected the bills and held them to Société Générale’s order. The indorsement was therefore not completed on that date. A recipient cannot be forced to accept a transfer of property or rights against its will.
3. SCB could not later accept the bills unilaterally. Gunvor’s consent was required, although a fresh formal presentation was unnecessary if Gunvor made clear that SCB could take up the documents and accept liability under the credit.
4. Gunvor’s claim for the face value of the credit properly sounded in debt, subject to consequential damages, because payment under a sight credit was conditional on transfer of the documents. By accepting payment without requiring their return, Gunvor necessarily accepted SCB’s entitlement to take them up. The payment therefore completed the transfer and made SCB the holder.
5. The transfer also satisfied section 2(2)(a). The relevant inquiry is to identify the contractual or other arrangement pursuant to which the transfer was made. The transfer remained in real terms pursuant to the original credit arrangement, despite expiry of the credit and delayed payment. SCB consequently acquired title to sue for misdelivery.

• Court of Appeal (Civil Division): appeal dismissed. The court disagreed with the first-instance reasoning that SCB became holder on 4 June 2010, but upheld the alternative conclusion that it became holder on 7 July 2010 and acquired the rights of suit.
• High Court of Justice, Queen’s Bench Division, Admiralty Court: Teare J held that SCB became holder on presentation and, alternatively, on settlement: [2013] EWHC 808 (Comm) .