In this case the Court of Appeal was required to consider the point at which effective delivery occurred and whether or not an electronic system of pin codes could be a sufficient substitute for bills of ladings.
Between January 2011 and June 2012 Glencore International AG (Glencore) made 69 shipments of cargo, which were carried by Mediterranean Shipping Company SA (MSC), to Antwerp. This case concerned the 70th shipment, consisting of three containers of cargo. Glencore was the holder of the bill of lading and the owner of the cargo. All 69 shipments were made under bills of lading which had materially similar terms. All of the bills allowed delivery orders to be exchanged instead of the goods when the bills of lading were surrendered.
The port operated an electronic release system (ERS) which was introduced from the start of 2011. Under this system carriers provided, against bills of lading, computer generated pin codes which were sent in a ‘release note’ via email to the relevant receivers or their agents and the port terminal. This was instead of delivery orders or release notes which would be presented to the terminal to take delivery of the goods. The system was not mandatory and was not adopted by all the carriers using the port.
C Steinweg NV (Steinweg) had been Glencore’s agent at the port and the notify party in the bills of lading in respect of each of the previous 69 shipments and on each occasion had successfully used a pin code to take delivery of the goods from the MSC terminal.
Upon arrival at Antwerp, the containers were discharged and pin codes were sent to Steinweg. However, when an attempt was made to collect the containers, it was discovered that two of them had already been collected by ‘unauthorised persons’. Glencore issued a claim against MSC claiming damages for breach of contract, bailment and conversion on the basis that, as expressly stipulated by the bill of lading, MSC should have delivered the cargo against bills of lading, they should not have delivered against the presentation of a pin code. Mr Justice Andrew Smith gave judgment in favour of Glencore and MSC then appealed to the Court of Appeal on five grounds.
Ground 1: pin codes as (symbolic) delivery
MSC submitted that the provision of the pin codes to Steinweg itself amounted in law to delivery of possession of the goods. They argued that delivery could be affected by a symbolic act, whereby a substitute for the cargo was given to the receiver, the classic example being the delivery of a key to a warehouse where goods were stored. Sir Christopher Clarke did not find this argument compelling. He pointed out that when a carrier delivered the cargo to the first presenter of a genuine, original bill of lading, the presenter did not obtain delivery merely on receipt of the bill or by some symbolic act; he/she secured delivery of the actual cargo against presentation of the bill.
In MSC’s view, although they might have been able to revoke the pin codes, in practice they could not have done so legitimately and delivery was therefore effected upon the provision of the pin codes. Sir Christopher Clarke agreed with the judge at first instance that, so long as the pin codes remained valid, ‘MSC Belgium had at all times the power, albeit not the contractual right as against Glencore or Steinweg, to invalidate [the pin codes]. To that extent, MSC did not… divest itself of all powers to control any physical dealing in the goods’. Had the bill of lading specifically provided that the provision of pin codes amounted to delivery then the position might well have been different.
Ground 2: the release note and the pin codes as a delivery order
In their submissions, MSC stipulated that the release note containing the pin codes was itself a delivery order for the purposes of the bill of lading. The expression ‘delivery order’ was not defined in the bill of lading and was therefore capable of having different meanings. The provision of the codes to Steinweg was a means of instructing the terminal to deliver to whoever entered the correct codes at the port. The court disagreed. Under an English law contract, such as the one in question, a delivery order should be regarded as having the same meaning as a ‘ship’s delivery order’, as defined under CoGSA 1992. The delivery order was to be provided by the owners of the ship as an alternative to actual delivery in exchange for the bill of lading and in substitution for it. It was implicit in those circumstances that the parties intended that the delivery order should have the key attribute of a bill of lading, namely an undertaking by the carrier to deliver the goods to the person identified in it, which would, here, have to be Glencore or Steinweg, Glencore’s agent. A pin code did not carry undertakings with it and it could not, therefore, constitute a delivery order. Delivery was not therefore affected when the pin was entered for the first time at the terminal and MSC’s obligations to Glencore continued.
Ground 3: release note and pin codes as ship’s delivery order
Unlike with ground 2, here, the crucial point was not simply whether the release note contained an undertaking, but who that undertaking was in favour of. MSC argued that the release note containing the pin codes was a ship’s delivery order within section 1 (4) of CoGSA 1992 and that it represented an undertaking by MSC to deliver to whoever first entered the pin. The court disagreed as a delivery order within the meaning of the bill of lading required an undertaking from MSC to deliver to Glencore or Steinweg. This was not the same as an obligation to deliver to the first person to submit the code.
Ground 4: estoppel
MSC argued that Glencore was estopped from contending that delivery of the cargo upon presentation of a pin code was a breach of contract because Glencore gave the appearance that it was content for the ERS to be used for the 69 previous shipments. Sir Christopher Clarke agreed with the first instance judge that there was no estoppel. The judge was right when he said that the breach relied on by Glencore was not simply that delivery was made against the codes but that delivery was not made to Glencore or its agents at all. No representation, let alone a clear one, was made by Glencore or on its behalf that delivery otherwise than to it would be acceptable provided that it was made to the first presenter of the codes. The fact that cargoes had been delivered to Glencore after presentation of pin codes on many occasions did not say anything about what the position would have been if they had not. The court also highlighted the fact that Glencore was not even aware that the ERS system was in operation at Antwerp.
Ground 5: causation
By an application notice dated 13 February 2017, MSC applied to adduce new evidence and to amend its notice of appeal to include the issue of causation. MSC argued that the hacking which had probably allowed the thieves to obtain the pin codes was due to weaknesses in Steinweg’s IT infrastructure and not in MSC’s and that Glencore should have searched for any documents alluding to this during the disclosure process. The court refused permission to amend the notice of appeal and allow further investigations primarily because the application was made too late. It was ‘tolerably clear from an early stage’ that the way in which the thieves may have gained access to the codes was through cybercrime. It was far from clear that the thieves got access to the codes from access to a Steinweg computer (as opposed to an MSC computer or some other means) or that it was apparent to Steinweg that the risk that access to the codes might be so obtained was sufficiently great that a failure to alert MSC, could be said to break the chain of causation.
This case highlights the potential pitfalls of an organisation adopting new technologies within its day to day working practices without giving adequate thought to the legal or security implications of doing so. Companies must protect themselves contractually and review their position not merely upon the initial introduction of a new technology, but continually as the technologies (and cybercriminals) become increasingly more sophisticated. It seems that companies will have to take positive steps to ensure that they, and their agents, are not vulnerable to security breaches.
This article originally appeared in the June 2017 edition of shipping case digest.