Mis-Delivery Of Cargoes

A term in the Bill of lading may appear as such: “excluding liability for misdelivery … the carrier shall be under no liability in any capacity whatsoever for loss or misdelivery of or damage to the goods however caused whether or not through the negligence of the carrier, his servants, agents or sub contractors … ”

Sometimes it would appear that the carrier has done the correct procedure and would not be caught in a liability exposure, especially if it is a shipment under a straight bill of lading.The following case in HK courts (Carewins vs Bright Fortune Shipping) would be an interesting reading for better understanding of the subject. Briefly the details of the case are as follows”

Carewins exported footwear products to their buyer -Artist Fashion in Los Angeles . Bright Fortune Shipping was the carrier and took on the liability in such role. They subcontracted the ocean carriage to a shipping line. Upon arrival at the port of Los Angeles , the handling of the containers was undertaken by a company called TUG pursuant to an agency agreement with Bright Fortune Shipping.

Delivery to the warehouse of Artist Fashion was approximately one hour road journey undertaken by TUG. The goods arrived at the warehouse and thereupon “Burberry” sued Artist Fashion for trade mark infringement. It would seem that the carrier (Bright Fortune Shipping) would have no concern with regard to this legal action. Unfortunately this was not the case. The footwear products were seized and were never returned to Artist Fashion and at that point of time Carewins did not receive any payment for the export. Further, it was determined that the carrier had allowed delivery without requesting return of an original bill of lading. In consequence, Carewins sued Bright Fortune Shipping for the invoice value of the goods on ground of mis-delivery of cargo. Was there an issue for carrier to answer?

During the first hearing there were issues, which the court had to consider with regard to liability of Bright Fortunes and these include:

1. Were there mandatory application of the Hague-Visby Rules, or

2. The agreement between the two parties as evidenced in the bill of lading should prevail.

The issue considered was to determine when “discharge” of the goods would have occurred in relating to the application of the Hague Visby Rules. The conclusion in the first hearing was ruled in favour of the carrier ie the HV Rules did not apply and carrier was able to avoid liability by the term of the exclusion appearing in the bill of lading (as above stated). That is, Bright Fortune was protected by the term of the bills of lading.

The case subsequently went on appeal. The Appeal Court allowed this and ruled in favour of Carewins. Detailed considerations were made by the court into various other clauses in the bills of lading including interpretation of the above exclusion, in particular with reference to the term: “whether or not through the negligence”. The court had also noted that the carrier delivered the goods intentionally despite non-production of the straight bill of lading. The court scrutinized other clauses in the bill of lading and the information on the front of the bill. In particular there were concerns on the ambiguity of the descriptions on port of discharge, place of delivery and final destinations. In conclusion, Carewins' claim was successful in full amount as this was within the available limitation of liability under the US Cogsa. The amount awarded was in excess of US$800,000/-.

Relating to insurance on carrier's liability, this claim could not be indemnified by the policy as the delivery without collecting Bill of Lading was not an error – it was intentional. Perhaps, there has been prior agreement under commercial consideration or for the expediency of operation that a carrier is prepared to accept such practice of delivery without bill of lading. The risk of an uninsured liability is however very high.

Was a legal action arising from a trade mark infringement that contributed to a legal action against carrier a risk envisaged by the carrier in a conduct deviating from normal procedure (ie delivery accompanied by collection of bills of lading)? It may not be. Keeping to correct procedure would be the least risk undertaken with the certainty of insurance protection. Deviating from that, the risks increase and insurance protection becomes grey.

Note: This is a brief note on the case and for better understanding, please refers to the full text. No advice is intended in this note.