A holder of a bill of lading was deemed the owner of the cargo under section 25 of the Sale of Goods Act, even where the particular terms of a back to back sale contract indicated property only passed on payment, rather than on transfer of the bill.

Background

PT Awindo International (PT Awindo) were the shippers of a cargo of frozen swordfish, which they agreed to sell to Fishco BVBA (Fishco) (the First Contract). On the same date, Fishco also contracted with the Claimants, Carlos Soto Sau (Carlos Soto) for the on-sale of the cargo at a profit (the Second Contract).

The terms of the two contracts were materially similar with one main exception – the First Contract contained a rejection clause which was not replicated in the Second Contract.

In both cases, the cargo was to be paid for by an irrevocable letter of credit providing for payment within 45 days of shipment under the First Contract and within 60 days under the Second Contract.

The cargo was shipped on board the “SFL HAWK” and a  “to order” bill of lading was issued by Maersk, naming PT Awindo as the shipper and Carlos Soto as the notify party. This bill of lading was endorsed in blank and passed to Fishco, who delivered the bill of lading and associated documents to Banco Santander, with whom Carlos Soto had opened the letter of credit. Although Banco Santander alerted Carlos Soto to discrepancies in the documentation, Carlos Soto waived these and collected the documents, amongst which was a packing list stating “LC 45 days after shipment with rejection clause”.

At discharge, the temperature of the cargo was found to be overly high. Consequently, the Vigo Port Authority rejected the cargo, which meant that it could not be sold in the European Union. No payments had yet been made for the cargo by either party.

Fishco presented the rejection certificate to their bank, who cancelled the letter of credit in favour of PT Awindo. Carlos Soto paid Fishco in full for the cargo, before reselling the damaged cargo back to Fishco for 10% of the invoice value, by way of mitigation.

PT Awindo brought a claim against Maersk in respect of their losses. The parties settled on terms where PT Awindo warranted that they were the lawful holder of the bill of lading, that no other party had title to sue and that they were authorised to act on behalf of all other cargo interests.

Irrespective of that settlement, Carlos Soto brought their own claim against Maersk for damages.

Maersk agreed that Carlos Soto had paid for the cargo, were the lawful holder of the bill of lading and were entitled to possession of the cargo at all relevant times. Maersk did not agree that Carlos Soto were the owners of the cargo at the relevant time or that they had suffered any loss.

The Court was therefore asked to consider the following points by way of preliminary issue:

Did property in the cargo pass such that Carlos Soto were at all relevant times the owners of the cargo?

Whilst endorsing and transferring a bill of lading is prima facie evidence that there is an intention to pass property, this does not necessarily always follow. The question of passing of property is one of “actual intention”.

The First Contract and letter of credit provided for delayed payment, the right to reject the cargo and the right to cancel the letter of credit. These particular features led  the Court to conclude that the parties did not intend for property in the cargo to pass until PT Awindo had received payment from Fishco. As Fishco had cancelled the letter of credit, property remained with PT Awindo.

Carlos Soto raised an alternative argument that they received the bill of lading in good faith, with the consent of the seller and without notice of any rights of the original seller to retain title. It was submitted that Carlos Soto should be considered the owners of the cargo pursuant to s.25 of the Sale of Goods Act 1979 (SGA 1979).