On 20 August 2021 the Court of Appeal issued a landmark judgment concerning bills of lading in The Luna,(1) and held that the bills of lading did not have contractual force or effect as a contract of carriage or a document of title.
Six barge bunkers were sold by Phillips 66 International Trading Pte Ltd ("P66") to OW Bunker Far East (Singapore) Pte Ltd and Dynamic Oil Trading (Singapore) Pte Ltd (together, "the buyers"). The buyers nominated Vopak Terminal as the loading location. Between 10 and 29 October 2014, the bunker barges loaded bunkers at Vopak Terminal. Vopak Terminal provided several documents regarding the bunkers, including a certificate of quantity and bills of lading. The bills of lading were signed and stamped for and on behalf of the owners of the bunker barges. The buyers' parent company, OW Bunker A/S, became insolvent on 6 November 2014 and the buyers defaulted. P66 demanded payment. When this payment was not made, P66 arrested the bunker barges as security for their claims for, among other things, misdelivery of cargo. In the ensuing court proceedings, P66 argued that the bills of lading should be given full force and effect as documents of title or contracts of carriage, and that the bunker barge owners were liable for, among other things, misdelivery because they had misdelivered the cargo without producing the original bill of lading. However, the bunker barge owners claimed that they were not liable because the subject bills of lading operated merely as an acknowledgement of the receipt of the bunkers, not contractual documents or documents of title.
The High Court granted P66's claim; the bunker barge owners appealed.
The Court of Appeal found that, based on the features of the sale contract for the sale and purchase of bunkers between P66 and the buyers, the subject bills of lading were non-essential documents with no contractual force or effect as a contract of carriage or a document of title. The Court found that several features of the sale contract were salient – namely, that:
- there was a 30-day credit period for payment;
- the payment had to be made against the presentation of P66's commercial invoice;
- the title to and possession of the bunkers passed to the buyers upon loading;
- the sale contracts did not expressly refer to bills of lading; and
- the buyers had given delivery instructions to the bunker barges, and P66 had known that deliveries would be made shortly after the loading.
These arrangements showed that P66 had had no real obligation to transfer the bills of lading to the buyers for payment and that the buyers had not been expecting to receive the bills of lading in order to fulfil the bunkers' delivery. Therefore, the buyers could deal with the bunkers as soon as they were loaded on board the bunker barges. The Court held that the parties had not intended for the buyers to deal with the bunkers only after the presentation of an original bill of lading.
In addition, the subject bills of lading contained features that were atypical of traditional bills of lading, which reinforced the notion that they had not been intended to operate as typical bills of lading, as per a contract of carriage and document of title. These features included that:
- the bills of lading did not specify a port of discharge or port of destination – the phrase "bunkers for ocean going vessels" was inserted where a destination would ordinarily be indicated; and
- the parties contemplated delivery of the bunkers to multiple ocean-going vessels, which indicated that the parties had never intended for the bunkers to be delivered only after an original bill of lading had been produced.
The judgment is a landmark decision and is remarkable in several respects, not only as regards bills of lading issued in respect of bunker cargoes loaded on board bunker barges for delivery to ocean-going vessels, but also for bills of lading generally.
It has long been thought that a bill of lading is independent of the underlying sale contract. This judgment held that the terms of the sale contract will usually be useful to elucidate the true legal effect of the accompanying bill of lading. While a bill of lading is independent in the sense that the parties (ie, the shipper and carrier) are different from the parties to the sale contract (ie, the buyer and shipper or seller), and the two contracts are governed by different terms, both contracts operate in tandem.
The significance of this judgment stretches beyond shipping, to the realm of general contract law. It also clarified that the parol evidence rule does not apply to cases that involve the need to ascertain the existence of a contract, as opposed to cases that involve the interpretation of a contract. Therefore, when determining whether the parties intended the bills of lading to have contractual effect, the court is entitled to take into account all of the relevant circumstances of the case in order to draw the appropriate inferences as to what the parties are objectively intended by issuing the bills of lading. Further, the court may have regard not only to the perspectives of the shipper and the carrier, but also to the perspectives of other parties that were generally known to use the bills of lading.
The Court's finding that the subject bills of lading were not contracts of carriage and/or documents of title may potentially have wider application to bills of lading issued for bunker cargoes that are loaded on board bunker barges for delivery to ocean-going vessels in Singapore. In reaching its conclusion that the bills of lading were neither contracts of carriage nor documents of title, the Court of Appeal cited a number of features that appear to be common in the Singapore bunker industry, such as:
- the 30-day credit;
- the quick turnaround for delivery after loading; and
- the delivery of bunkers to multiple ocean-going vessels.
The impact of this decision on banks is also uncertain. In this case, the Court rejected an argument by P66's counsel that bills of lading similarly worded to the subject bills of lading had been relied upon by banks to provide financing. The Court rejected this because it was unclear whether those cases involved the use of credit terms. The Court observed that cases involving banks would invariably involve the use of letters of credit or the requirement for payment against the presentation of bills of lading, and an extension of credit terms would typically remove the need for bank financing. While the Court's observation applies to cases involving letters of credit and documents against payment, it is not clear whether the same outcome would be reached in a case involving receivables financing, where there is a credit period and the bill of lading may be presented to the bank as part of the documents in order to obtain financing.
Ordinarily, claims for misdelivery of cargo without production of an original bill of lading are quite straightforward; the courts often grant summary judgments for such misdelivery claims. This is because the law is well established in this area; a carrier that delivers without producing an original bill of lading does so at their own peril. However, in this case, not only was P66's application for summary judgment dismissed,(2) but P66's claims were also ultimately dismissed by the Court of Appeal on the basis that the bills of lading were neither contracts of carriage nor documents of title.
The judgment will be important to the Singapore bunker industry and will have a far-reaching effect on its various players, including:
- bunker traders;
- bunker barge owners;
- operators; and
- oil terminals.
Bunker traders and bunker suppliers should closely re-examine their contracts and general terms and conditions for the sale and purchase of bunkers, including terms that concern the passing of:
- shipping documents; and
They may also wish to work together with oil terminals to review the wording of the bills of lading that are prepared and issued. Additional or alternative forms of payment security should also be considered, bearing in mind the possibility that bills of lading issued for bunker cargoes for delivery to ocean-going vessels may not be given effect as documents of title or contracts of carriage.
For further information on this topic please contact Jonathan Tan at Helmsman LLC by telephone (+65 6816 6660) or email ([email protected]). The Helmsman LLC website can be accessed at www.helmsmanlaw.com.
An earlier version of this article was first published in Manifold Times.