Singapore High Court: Delivery To A Person Not Entitled Does Not Cause The Bill Of Lading To Be Spent, Bill Is Not Spent Even If The Lending Bank Becomes The Holder Of The Bill After The Cargo Is Discharged

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In [T]he “Yue You 902” and another matter [2019] SGHC 106, the Singapore High Court addressed the issue of whether the bills of lading held by buyer’s lending bank becomes “Spent Bills” if the loan was granted after the discharge of cargo by the carrier thereby making Section 2(2) of the Bills of Lading Act (Cap 384, 1994 Rev Ed) of Singapore applicable. It also raises other interesting issues such as what constitutes relevant prior “contractual or other arrangements” for the purpose of Section 2(2)(a) of the Bills of Lading Act and what constitutes “good faith” for the purpose of Section 5(2) of the Bills of Lading Act. Detailed case analysis given below:-

Factual Matrix

FGV, the seller of goods, signed a voyage charterparty for “Yue You 902” with Carrier (Defendant). The goods were to be sold to Avanti, the sub-seller, who further contracted the goods for Ruchi, the ultimate Buyer. Ruchi issued a back-to-back LOI to Avanti who in turn issued a back-to-back LOI to FGV who further issued an LOI to the Defendant, all requesting to deliver the cargo without production of the original bills of lading.

Meanwhile, the Bank of Avanti, OCBC (Plaintiff), received 14 bills of lading from FGV through its bank, Maybank, under cover of a documents against payment collection schedule. The bills of lading were blank endorsed by FGV. Aavanti requested OCBC to finance for the entire purchase price by way of a trust receipt loan which was granted by OCBC. Interestingly, the cargo was completely discharged before OCBC remitted the purchase price to Maybank.

Later, Avanti failed to repay the loan and therefore, OCBC 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. OCBC then initiated proceedings against the Defendant pursuant to the 14 bills of lading for breach of contract of carriage, breach of contract of bailment, conversion and detinue.

Applicable Legal Principles

Section 2(1) & (2) of the Bills of Lading Act

2 Rights under shipping documents

2.—(1) Subject to the following provisions of this section, a person who becomes —

(a) the lawful holder of a bill of lading;

(2)  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; or

(b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements.

Section 5 of the Bills of Lading Act

5

(2)  References in this Act to the holder of a bill of lading are references to any of the following persons:

(a) a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;

(b) a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill;

(c) a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates, and 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.

Parties Contentions

Defendant raised following contentions

  • That, because OCBC became the holder of the bills of lading after the Defendant had completed delivery of the cargo to Ruchi, the bills have become spent before OCBC became their holder. Consequently, Section 2(2) of the Bills of Lading Act applied, and no rights of suit could be transferred to OCBC unless OCBC could bring itself within Section 2(2)(a).

 

  • That OCBC’s situation did not fall within Section 2(2)(a) because the relevant “contractual or other arrangements” for the purpose of Section 2(2)(a) was the granting of the loan by OCBC to Aavanti. Since this took place after the Defendant had completed delivery of the cargo to Ruchi, it was not a contractual or other arrangement made before the bills became spent. Consequently, OCBC could not derive any rights of suit pursuant to Section 2(2)(a) read with Section 2(1).
  • That OCBC had particular knowledge of Aavanti’s commercial practices and knew the cargo had already been discharged against an LOI by the time OCBC became the holder of the bills.
  • That estoppel by convention and/or acquiescence prevented OCBC from asserting the claim for wrongful discharge.

Per contra OCBC argued

  • That, assuming Section 2(2) applies, the relevant “transaction” would be Aavanti’s request for and OCBC’s grant of a trust receipt loan while the relevant “contractual or other arrangements” would be the facility agreement between OCBC and Aavanti. It was pursuant to the facility agreement that Aavanti sought the loan and OCBC granted it.

Observations of the High Court

While deciding the case, the High Court deliberated upon some important questions of law and observed as under:

  • The phrase “possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates” under Section 2(2) covers the situation where a bill of lading would at common law be regarded as spent.
  • Delivery to a person not entitled does not cause the bill of lading to be spent [relied on BNP Paribas v Bandung Shipping Pte Ltd (Shweta International Pte Ltd and another, third parties) [2003] 3 SLR(R) 611]
  • Delivery against an LOI to a person who is not entitled to claim them under the bills of lading does not exhaust a bill of lading [relied on The Future Express [1992] 2 Lloyd’s Rep 79]
  • A seller who endorsed a bill of lading and parted possession with it for the purpose of obtaining payment would have rendered himself incapable of demanding delivery under the bill of lading for the simple reason that he would be in no position to present the bill of lading to the carrier in exchange for delivery of the cargo. [relied on The Erin Schulte [2015] 1 Lloyd’s Rep 97]
  • The right of the holder of a bill of lading is not taken away by a provision for the vessel to discharge against a letter of indemnity even though the vessel would arrive at the discharge port ahead of the bill of lading [relied on BNP Paribas v Bandung Shipping Pte Ltd (Shweta International Pte Ltd and another, third parties) [2003] 3 SLR(R) 611]
  • 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 defence of consent implied that “something was said or done by the pursuers which affected the mind of the master of the ship, induced him to conclude that they were consenters, and thus encouraged him to make delivery without production of the bills of lading”. [relied on Nederlandsche Handel-Maatschappij v Strathlorne Steamship Company (1931) 39 Lloyd’s Rep 171].
  • One of the requirements for estoppel by acquiescence is that the defendant must be mistaken as to his own legal rights. [relied on Nasaka Industries (S) Pte Ltd v Aspac Aircargo Services Pte Ltd [1999] 2 SLR(R) 817]
  • Two requirements for estoppel by convention are that the parties must have acted on “an assumed and incorrect state of fact or law” and the assumption must be either shared by both parties pursuant to an agreement or something akin to an agreement, or made by one party and acquiesced to by the other. [relied on Travista Development Pte Ltd v Tan Kim Swee Augustine and others [2008] 2 SLR(R) 474]

Judgement

Based on the above observations, the High Court of Singapore held:

  • Whether FGV was entitled to delivery under the bill of lading would depend on (a) whether the bill was endorsed to it or, alternatively, was blank endorsed, and (b) whether it had possession of the bill of lading such that it was in a position to present the bill of lading to the carrier in exchange for delivery of the cargo. FGV did not meet criterion (b) at the material time.
  • Therefore, neither FGV nor Ruchi were persons entitled to delivery under the bills of lading at the time the cargo was being discharged and delivered to Ruchi. The bills of lading were not spent by the time OCBC become holder of the bills.
  • In the instant case, for the purpose of Section 2(2)(a), the relevant “transaction” is Aavanti’s request for and OCBC’s grant of a trust receipt loan while the relevant “contractual or other arrangements” would be the facility agreement between OCBC and Aavanti. Therefore, even if it were to be assumed that Section 2(2) applies, OCBC would come within the scope of s 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.
  • That the Defendant was not able to prove either through its expert or its affidavit that OCBC had particular knowledge of Aavanti’s commercial practices. Further, Since the loan was granted only after the discharge of cargo was completed, there could have been no prior consent by OCBC to the discharge of the cargo.
  • In respect of estoppel by acquiescence, the Defendant’s delivery against an LOI is precisely an acknowledgement and acceptance that they are not entitled to deliver without presentation of the bills, and might become liable for misdelivery otherwise. Further, the Defendant’s acceptance of and reliance on FGV’s LOI demonstrates that it was not mistaken about it legal rights.
  • In respect of estoppel by convention, OCBC could not have shared a common assumption with the Defendant since they did not communicate with each other prior to the cargo being discharged and they could not have been “aware of the facts on which the common assumption in question was said to have been based”, since at the time the cargo was discharged, the Defendant could not have any knowledge of OCBC, much less OCBC’s dealings with Aavanti.

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