QCR Summer 2019: Delivery of cargo to a person not entitled to delivery under the bill of lading does not cause the bill to be spent
The “Yue You 902” and another matter  SGHC 106
The Plaintiff had extended a loan to the buyer of the cargo, Aavanti Industries Pte Ltd (“Aavanti”) and took bills of lading as security for the loan. The Defendant is the owner of the vessel “Yue You 902” (the
“Vessel”). The Plaintiff claims against the Defendant for its failure to deliver to the Plaintiff the cargo to which the bills of lading in the Plaintiff’s possession relate.
FGV Trading Sdn Bhd (“FGV”) was the seller of the cargo as well as the voyage charterer of the Vessel. It issued a letter of indemnity to the Defendant, requesting the Defendant to deliver the cargo to the ultimate buyer without production of the original bills of lading.
Discharge of the cargo commenced on 27 April 2016 and was completed on 29 April 2016. In the meantime, on 26 April 2016, the Plaintiff received the bills of lading from FGV and requested payment instructions from Aavanti. Aavanti replied requesting financing by way of a trust receipt loan. On 29 April 2016, the Plaintiff granted the loan for the sum requested and effected payment of the purchase price. In other words, the cargo had been completely discharged from the Vessel before the Plaintiff remitted the purchase price.
After Aavanti defaulted on the loan, the Plaintiff proceeded to enforce its security over the bills of lading by demanding delivery of the cargo from the Defendant, which the Defendant failed to do.
The Plaintiff commenced proceedings against the Defendant and obtained summary judgment. The Defendant appealed.
The High Court dismissed the appeal and held, inter alia, as follows:
- The bills of lading were not spent by the time the Plaintiff became holder of the bills. Delivery against a letter of indemnity to a person who is not entitled to delivery under the bill of lading does not cause the bill to be spent. This holding is not affected by a clause in the voyage charterparty which obliges the Defendant to deliver against a letter of indemnity from FGV if bills of lading are not available.
- Even assuming that the bills of lading were spent and section 2(2) of the Bills of Lading Act applies, the Plaintiff would come within the scope of section 2(2)(a), and would therefore have obtained rights of suit under the bills of lading pursuant to section 2(1) of the Bills of Lading Act. In this case, the relevant “contractual or other arrangement “is the facility agreement made between the Plaintiff and Aavanti.
- The Plaintiff had become the holder of the bills of lading in good faith as required by section 5(2) of the Bills of Lading Act. The holder of a bill of lading holds it in good faith for the purpose of section 5(2) of the Bills of Lading Act if he became its holder honestly. The Plaintiff’s granting of the loan in return for security interest over the bills of lading (even assuming it already knew that the cargo had been discharged) constitutes honest conduct.
- The Plaintiff’s grant of the trust receipt loan cannot be construed as consent to, or ratification of, the misdelivery.
This decision once again highlights the settled law that a carrier who issued the bill of lading is obliged to deliver the goods only to the person in possession of the bill, whether as original shipper or as transferee of the bill by indorsement (where necessary) and delivery. Delivery of cargo (whether or not against a letter of indemnity) to persons not entitled does not cause a bill of lading to be spent.
This is another reminder to Members of the risks of delivering cargo other than against the presentation of the original bill of lading. Members are referred to Rule 2, Section 17 proviso c(ii) & (iii) of the UK Club’s Rules. Claims arising under proviso c are payable only at the discretion of the Members’ Committee.
 Section 2(2) of the Bills of Lading Act states “Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) unless he becomes the holder of the bill – (a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill…”
 The proviso at the end of section 5(2) of the Bills of Lading Act states “… a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith.”
Source UK P&I
You may also be interested in:
IG Letters of Indemnity
Members are often asked to accept letters of indemnity (LOIs) from their shippers or charterers in return for the delivery of cargo without presentation of original bills of lading, the delivery of cargo at a port other than that named in the bill of lading (or both) and in various other circumstances.
QCR Summer 2020: HARMONY INNOVATION SHIPPING PTE LTD v CARAVEL SHIPPING INC (THE “UNIVERSAL BREMEN”)
HARMONY INNOVATION SHIPPING PTE LTD v CARAVEL SHIPPING INC (THE “UNIVERSAL BREMEN”) -  1 Lloyd's Rep. 206. Delivery of cargo without bills of lading - Back-to back chain of letters of indemnity on the International Group standard form - Court recognises importance of allowing vessels to continue trading.
On 21 February, the English High Court in an unreported judgment of HARMONY INNOVATION SHIPPING v CARAVEL SHIPPING  2 WLUK 370 ordered charterers to provide security for the release of a ship under an LOI given to enable cargo to be delivered without production of the original bills of lading.