The carrier of a damaged shipment of swordfish faced a claim from the receiver of the cargo, despite having already settled a claim from the shippers. The court examined the chain of sale contracts and found that the receivers were the owners of the cargo at the relevant time and therefore had title to sue.
This recent Commercial Court1 case concerns a cargo of frozen swordfish which was damaged during shipment from Indonesia to Spain. The shipper of the cargo, PT Awindo had entered into a sale contract with Fishco on CFR terms. The contract stipulated that payment was to be made under a letter of credit 45 days following shipment and also gave Fishco the right to reject the cargo in the event that it was rejected by the authorities. Fishco then onsold the cargo to Carlos Soto, the receivers, on terms which were similar but did not include a rejection clause.
;Following shipment the bill of lading, issued to order, was endorsed and transferred to Fishco and then Carlos Soto. However, before payment was made, the cargo arrived in Spain and was rejected by the port authorities. Fishco rejected the cargo, but Carlos Soto, who believed the cargo to be at their risk, did not reject, and sold it for 10% of its undamaged value.
PT Awindo brought a claim against the carrier, Maersk, in respect of the damage. The carrier settled the claim with PT Awindo, who signed a settlement agreement stating that they acted on behalf of all parties interested in the cargo and that no other party had title to sue.
Following this Carlos Soto brought their claim against the carrier, asserting that they were the party who in fact had title to sue in respect of the cargo.
It was established that Carlos Soto were the holders of the bills of lading, and the court therefore had to decide whether or not Carlos Soto were the owners of the goods and had suffered losses as a result of the damage.
- The first issue was whether title had passed under the contract between PT Awindo and Fishco. The test for whether property has passed under a CIF or CFR contract is whether that was the parties“actual intention”. The fact a bill of lading has been endorsed and delivered to the buyer is prima facie evidence of an intention to pass title, but it is not conclusive. The judge found that, as payment was not due under the letter of credit for 45 days following shipment and Fishco had a right to cancel during this period, the parties’ intention was that title would not pass until payment was made. Therefore, as Fishco had never paid for the cargo, they had never obtained title.
- The second issue was whether Carlos Soto could nevertheless have obtained good title as a result of section 25(1) of the Sale of Goods Act 1979. In summary, this provision states that where a buyer obtains goods or documents of title in good faith and without notice of the interest of any third party, then the buyer is entitled to be regarded as the owner of the goods. The judge found that Carlos Soto had not been aware that PT Awindo still owned the cargo when it took delivery of the bill of lading. Therefore Carlos Soto was entitled to be regarded as the owner of the cargo and had title to sue in respect of the damage.
The important lesson from this case is that there is a risk that a carrier may have to pay out twice in respect of the same damaged cargo – once to the shipper and once to the receiver. Whilst it ought to have been possible for the carrier in this case to recover damages from the shipper for breaching its promise in the settlement agreement that it alone had title to sue, this depends on the financial strength and location of the shipper, and could prove costly. This judgment therefore highlights the importance of ensuring that a party has title to sue, and has actually suffered the loss, before settling a claim.