Three’s a crowd in cargo claims

In Carlos Soto Sau and another v AP Moller-Maersk AS (SFL Hawk) [2015] EWHC 458 (Comm), a carrier of cargo had settled a cargo claim with a cargo claimant, only to find that a second claim was then presented by a receiver further down the bill of lading chain.

In the case, the shipper PT Awindo Internation agreed to sell a cargo of frozen swordfish on CFR terms to the first buyer Fishco BVBA. This cargo of fish was then sold onto the second buyer Carlos Soto Sau through an on-sale contract.

On this occasion, although both contracts of sale were drafted in similar terms, they were not on a back-to-back basis. The main difference was that the first buyer had a rejection clause inserted in the contract, whereas the second buyer was not given the right to reject the cargo.

The cargo of swordfish was loaded in Jakarta, Indonesia and a standard form bill of lading was issued, naming PT Awindo as the shipper and Carlos Soto Sau as notify party. Maersk carried the cargo to Vigo, Spain, where it was rejected by the Vigo Port Health Authority. The cargo was found to have an overly high temperature and hence was declared unfit for human consumption. Following the rejection of the cargo, PT Awindo brought a claim against Maersk in respect of the cargo damage, which resulted in a settlement agreement between Maersk and PT Awindo where PT Awindo warranted that it was the lawful holder of the bill of lading and that no other party had title to sue and that it was authorised to act on behalf of all other cargo interests.

Second suit

Despite this settlement agreement, Carlos Soto brought its own claim against Maersk based on the argument that it was the lawful holders of the bill of lading and was entitled to possession of the cargo at all relevant times. Carlos Soto also argued that it had suffered damages in that it paid for the cargo to Fishco and was entitled to recover these sums as damages as a result of one or more breaches by Maersk, of its obligations as carrier.

The Court was asked to consider various preliminary issues but the most relevant were was Carlo Soto at all relevant times the owner of the cargo and, if it was, had it suffered any loss as a result of Maersk’s breach of duty as a carrier?

The Court was of the view that the rejection clause inserted in the first contract (which was used by the first buyer) clearly indicated that the parties did not intend for property in the cargo to pass to Fishco until payment had been received. In contracts under CFR or CIF, the question of when the parties have agreed to transfer property is based on “actual intention”. Even if the bill of lading had been endorsed and transferred, it was not clear and compelling evidence of an intention to pass property in the goods.

The second argument raised by Carlos Soto was that the bill of lading was received in good faith, with the consent of the seller and without notice of any rights of PT Awindo to retain title. This had the effect of kicking in Section 25 of the Sale of Goods Act 1979, which provides as follows:

“Where a person having brought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with consent of the owner” (emphasis added).

Ownership upheld

Even if Carlos Soto was put on notice of the rejection clause indicated in the packing list, this was not sufficient to infer that PT Awindo had retained property on the goods. Therefore, the Court held that Carlos Soto was entitled to rely upon this section and on that basis it was the owner of the goods.

The second preliminary issue was decided in favour of Carlos Soto, as Maersk’s breach of duty had caused it damages. The loss had crystallised when the damaged occurred during the voyage and the chain of causation could not be broken by the intervening act of Fishco not paying the money back to Carlos Soto.

This judgment emphasises the need to see the original bills of lading and make sure the correct parties are inserted and to double check whether it has been endorsed to a third party. The devil is in the detail when settling cargo claims, especially if the parties do not want to have unwelcome surprises after the settlement agreement has been signed.

Francisco Gozálvez is an assistant shipping/insurance litigator at LA Marine. He specialises in all types of marine litigation, including charterparty disputes, bill of lading claims and insurance claims. He can be contacted on +44 2380 827484 or francisco.gozalvez@LA-law.com.