Sang Stone Hamoon Jonoub Co Ltd -v- Baoyue Shipping Co Ltd (The ‘Bao Yue’) [2015]

A cargo of iron ore was shipped  from Iran to China under a bill of lading which was issued ‘to order’, with no named consignee or notify party. An Iranian company, which  had contracted to sell the cargo to a Chinese company, was the shipper of the cargo and was named as shipper on the bill of lading.

The vessel arrived at the Chinese discharge port, but nobody presented the bill of lading to take delivery. The reason was that there was a dispute between the Iranian shipper and the Chinese buyer as to what sum (if any) remained to be paid in respect of the cargo. The shipper kept possession of the full set of original bills of lading.

The shipowner arranged for the cargo to be discharged into a warehouse fairly near to the discharge port. The warehousekeeper was entitled under its contract to exercise a lien (with a power of sale) in respect of unpaid storage charges.

The shipper never tried to present the bill of lading to the warehousekeeper nor to pay the storage charges. Instead, the shipper arrested the shipowner’s vessel (in India) on the basis of an alleged claim for damages for delivery of the cargo without production of an original bill of lading. By the time the claim came to be heard in the Commercial Court in London, the shipper’s claim was no longer based on an allegation of delivery without production of the bill of lading, but instead proceeded on the basis that the shipowner  was liable in conversion because it had, without the authority of the owner of the cargo (the shipper), allowed a lien over the cargo to be created in favour of a third party (the warehousekeeper). Alternatively, it was argued that various things said or written amounted to a denial of the shipper’s right of access to the cargo.

Both aspects of the claim failed. On the facts, there had been no denial of access – the cargo remained available on presentation of the bill of lading and payment of the accrued  storage charges. So far as the creation of the lien was concerned, the bill of lading expressly permitted the discharge and storage of the cargo.  In any event, even if there were no express provision in the bill of lading, there was under the well-established general law of bailment an implied right to discharge and store the cargo if the bill of lading holder failed to take delivery. The creation of a lien was a reasonable and foreseeable incident  of the storage contract which the shipowner was impliedly authorised to conclude. The shipper must therefore have been taken to have authorised the creation of the lien.

The shipowner successfully counterclaimed for storage charges, which amounted to in excess of  US$2 million, and the London Commercial Court ordered that the shipper deliver the original bill of lading to the shipowner to enable the cargo to be sold.