English law - Switching bills of lading

When a carrier receives a request to substitute the original set of bills of lading with a new set he should be aware of the risks involved. A recent English case considers some aspects of this problem.

A recent case¹ in the English High Court is one of very few on the not so uncommon practice of switching bills of lading, that is, substituting the original set of bills with a new set.

Background
Yekalon Industry Inc (Yekalon), a Chinese company, was a seller of 30 containers of tiles to Sonaec SA (Sonaec), with the goods being shipped on Maersk's liner service through local agents High Goal Logistics GD Ltd (High Goal). The bill of lading, which was later treated by the English courts as a waybill (and which term will be used in this article for the sake of clarity), named Sonaec as consignee and the shipper(s) as B & D Co Ltd P/C (pour compte de) Vernal Investment (Vernal) & Yekalon. Vernal is a subsidiary or associate company of Sonaec. The consignee was Sonaec Villas in Cotonou, Benin. The notify party was Vernal P/C Sonaec Villas. The containers were to be loaded in China for discharge in Benin.

Seller not paid
Shortly after the waybill had been issued (it remains unclear whether the containers were in fact shipped), seller Yekalon claimed that it had not been paid by buyer/consignee Sonaec and asked agent High Goal for the waybill. High Goal refused on the grounds that it had not received instructions from B & D Co Ltd acting on account of the shippers. Yekalon applied to the Chinese courts and obtained a declaration that Yekalon was entitled to possession of the waybill.

Switched bills
On declaring that they had still not been paid by Sonaec, Yekalon surrendered the original waybills to Maersk and requested a new bill issued to the order of Yekalon (which, being "to order", would make it a bill of lading). Yekalon subsequently found a new buyer and then surrendered the replacement bill of lading for a second replacement naming the new buyer as the consignee.

Buyer commences proceedings against the carrier
Buyer Sonaec later commenced court proceedings against carrier Maersk in Benin, claiming that they were entitled to possession of the cargo. The Benin court made an interim ruling in favour of Sonaec requiring Maersk to ship the cargo to Sonaec and imposing a daily fine on Maersk of USD 4,800 until it complied. This was despite Maersk having challenged the Benin court's jurisdiction (the waybill contained an exclusive English law and jurisdiction clause) and also disputing that Sonaec no longer had title to sue since the waybill had been cancelled.

The carrier seeks relief from the English High Court
Having failed to persuade the Benin court, Maersk sought a declaration from the English High Court that Sonaec must submit its dispute to the latter court's jurisdiction and that Sonaec no longer had title to sue under the waybill. The High Court granted both declarations to Maersk and in reaching its decision the court had to tackle some difficult questions: was Sonaec a party to the waybill and was Sonaec still bound by the exclusive English law and jurisdiction clause after the waybill had been surrendered?

The court's answer to both questions was yes, but the question of whether the surrender of the waybill brought to an end the rights of Sonaec was more difficult. This was because the waybill stated that  B & D Co Ltd acted on account of two entities, one of which was seller Yekalon and the other of which was Vernal, a subsidiary of buyer Sonaec. The court was ultimately persuaded by the Chinese court order to deliver the waybill to Yekalon, therefore giving Yekalon the right to re-direct delivery or to cancel the waybill.

Comment
Although Sonaec had submitted a written response to the English proceedings, it was not supported by a statement of truth, and Sonaec did not appear in the English court proceedings. Had they done so, the declarations may not have been obtained as easily, particularly the declaration that only Yekalon had the right to re-direct delivery or to cancel the waybill, in circumstances where the waybill named B & D Co Ltd as acting for the account of two entities with opposing interests.

It may be of note that the judge appears to have been somewhat uncomfortable with the lack of evidence provided in the English proceedings, both as to Maersk's knowledge of certain documents that may have evidenced B & D Co Ltd's taking over of the goods for the account of Sonaec (referred to in the written response from Sonaec to the English proceedings) and Yekalon's evidence in the Chinese proceedings that they were the owner and shipper.

It is not clear whether Sonaec made any attempt to challenge the Chinese court decision or what effect the English court declarations had in the case overall.

Conclusion
The case highlights the importance of making clear who the shipper is in a bill, whether it is a waybill or bill of lading. If this is unclear, problems are likely to be encountered should the shipper request the carrier to re-direct delivery or issue replacement bills.  The case also serves to stress the importance of establishing the proper party entitled to make such a request.

There are other risks associated with switching bills, which are beyond the scope of this article. At the very least the carrier should ensure that all original bills of the first set issued are surrendered before a new set is issued. If there is a request to change any details in the bills then advice should be sought before this is agreed.

Footnotes
¹A.P. Moller-Maersk A/S (trading as Maersk Line). v Sonaec Villas Cen Sad Fadoul [2010] EWHC 355 (Comm).