Commodities traders will be interested in a recent decision of the English High Court in Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd “Bao Yue”1 which considered a vessel owner’s entitlement to discharge cargo into storage, pending presentation of an original bill of lading, on terms that created a lien in the storage provider’s favour in the event of non-payment of storage charges.

Background

Sang Stone Hamoon Janoub Co Ltd (the shipper) was the shipper and bill of lading holder in respect of a cargo of iron ore from Bandar Abbas, Iran, to Tianjin, China, on board Baoyue Shipping Co Ltd’s (the owner) vessel in 2012.

A dispute arose between the shipper and the end buyer of the goods under the sale contract and the shipper would not release the original bill of lading. Since the bill was not available on the vessel’s arrival, the cargo was discharged by the owner into a warehouse under letters of indemnity and in reliance on the bill of lading, which incorporated the following clause of the charterparty (clause 12):

“... In case original Bs/L would not be ready upon vessel’s arrival discharge port, owners allow to discharge cargo upon arrival to custom bonded warehouse area against Charterer’s single LOI with owners P&I Club wording signed by Chrs.

Release cgo against original bill of lading. In the event cargo being kept in the warehouse in lieu of waiting for OBL to arrive at the discharge port, the expense of warehouse and all relevant costs to be for Chrtrs’ account...”

Under the contract between the owner and the warehouse operator, the owner agreed to pay storage charges and failure to pay entitled the warehouse operator to refuse to release the cargo. The cargo remained in storage for several years and the warehouse operator refused to release it without payment of the hefty storage charges.

The claim

Although it was common ground that the owner was entitled to discharge the cargo into storage, the shipper commenced proceedings against the owner in the English High Court in tort, claiming alleged conversion of the cargo on two grounds:

  1. A lien for storage charges was created in favour of the storage provider without the shipper’s express or implied authority.
  2. The shipper was denied access to the cargo regardless of whether it presented the bill lading.

The owner counterclaimed for reasonable storage charges incurred under the storage agreement.

Conversion

In order to establish the tort of conversion, a claimant must show that the defendant’s conduct was:

  1. Inconsistent with the rights of the owner (or other person entitled to possession).
  2. Deliberate and not accidental.
  3. So extensive an encroachment on the rights of the owner “as to exclude him from use and possession of the goods”.

The decision

The court dismissed the shipper’s claim and accepted the owner’s counterclaim.

The court began by noting the accepted principle that a shipowner, as a bailee of cargo, is under a duty not to convert it. It also accepted that goods may be converted by a person who creates a lien on them without the authority of their owner.

However, the court held that an owner who authorises a bailee to deliver goods into storage “must be taken to authorise the creation of a lien where that is a reasonable and foreseeable incident of the storage contract which the bailee is authorised to conclude”.

In the present case, the owner’s authority to create a lien under the storage contract was implied by the terms of the contract of carriage. The shipper had expressly authorised the storage of the cargo by, among other things, the incorporation of clause 12 into the bill of lading. It also impliedly authorised the storage under the well-established general law that if a bill of lading holder does not claim delivery within a reasonable time, the master may land and warehouse the cargo. In such circumstances, the creation of a lien was a reasonable and foreseeable incident of the storage contract which the owner was authorised to conclude.

The court rejected the shipper’s assertion that denial of access to the cargo amounted to conversion. Whilst in some circumstances a denial of access to goods may constitute a conversion, in this case, the shipper failed to establish that it had been deprived of the use and possession of its cargo, which remained available to it on presentation of the bill of lading and payment of the accrued storage charges.

Commodity sale and purchase frequently involves a number of different contracts and parties must take account of the possibility that actions taken in relation to one contract can adversely affect their position in others. In this case, the shipper had refused to supply the original bill of lading because of a dispute with its buyer in the sale contract. The apportionment of liability in the contract of carriage meant that the shipper then found itself unable to recover from the owner the vast storage charges caused by the delay in taking delivery.